SOVEREIGN IMMUNITY AND TRANSNATIONAL ARBITRATION BY OKEZIE CHUKWUMERIJE LL.B. (Hons.) University of Benin, 1987 B.L. Nigerian Law School, 1988 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF LAWS IN THE FACULTY OF GRADUATE STUDIES (FACULTY OF LAW) We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA JULY 1989J © Okezie Chukwumerije In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of | _ / V L A J The University of British Columbia Vancouver, Canada DE-6 (2/88) THESIS ABSTRACT State p a r t i c i p a t i o n i n the a r b i t r a t i o n of transnational commercial disputes i s s t e a d i l y increasing. I t i s estimated that a r b i t r a t i o n of state contract disputes presently constitute one quarter of the disputes submitted to ICC a r b i t r a t i o n . Where a state party . i s involved i n an a r b i t r a t i o n , the sovereign immunity doctrine - which i n some cases exempts foreign states from the j u r i s d i c t i o n of municipal courts - may have adverse e f f e c t on the a r b i t r a t i o n process. The the s i s explores the impact of the immunity doctrine on the a r b i t r a t i o n of state contract disputes. State p r a c t i c e i n selected j u r i s d i c t i o n s i s used to i l l u s t r a t e the methods adopted i n an e f f o r t to mitigate the impact of the immunity doctrine on commercial a r b i t r a t i o n . In t h i s respect, focus i s placed on both j u r i s d i c t i o n a l immunity and immunity from execution. The t h e s i s concludes that the private party may avoid unnecessary l i t i g a t i o n by requiring the state party to expressly waive i t s immunity both during the recognition and enforcement stages. The waiver should be included i n the a r b i t r a t i o n agreement. i i i CONTENTS THESIS ABSTRACT l l ACKNOWLEDGMENTS i v 1. I n t r o d u c t i o n 1 2. The s o v e r e i g n immunity d o c t r i n e 6 Footnotes 17 4. A p p l i c a b i l i t y o f s o v e r e i g n immunity b e f o r e i n t e r n a t i o n a l t r i b u n a l s 20 Footnotes •••••••••• 28 5. A r b i t r a t i o n c l a u s e s and j u r i s d i c t i o n a l immunity o f s t a t e s b e f o r e m u n i c i p a l c o u r t s 30 Footnotes 46 6. S t a t e immunity from e x e c u t i o n 48 Footnotes ........ . . . • . • • • • • » © . © . . . . . o o . . . . . . . . . . . 58 7. I n t e r i m measures o f p r o t e c t i o n 60 Footnotes 74 8. Measure o f e x e c u t i o n 76 Footnotes 95 9. I n t e r n a t i o n a l Centre f o r the Settlement o f Investment D i s p u t e s ' ° ° 9 7 Footnotes 118 10. C o n c l u s i o n 1 2 1 11. B i b l i o g r a p h y 1 2 5 i v ACKNOWLEDGEMENTS I wish to acknowledge my debt of gratitude to Professors R. Paterson, H. Alvarez and M. MacCrimmon for t h e i r guidance and encouragement during the preparation of t h i s thesis- I need hardly add that I am s o l e l y responsible f o r whatever mistakes the the s i s contains. The Law Foundation of B r i t i s h Columbia deserves sp e c i a l award of thanks. My study at U.B.C. would not have been possible without i t s generous f i n a n c i a l support. F i n a l l y , I remain e t e r n a l l y g r a t e f u l to my family and friends f o r t h e i r undying love and a f f e c t i o n , 1 INTRODUCTION 1 . STATEMENT OF THE PROBLEM The l e v e l of commercial a c t i v i t i e s between the developed and the developing countries of the world i s s t e a d i l y on the increase. In the great" majority of cases the commercial r e l a t i o n s i s between foreign private p a r t i e s and the governments of developing countries. Developing countries are mostly dependent on foreign business concerns f o r the importation of c a p i t a l and machinery needed f o r national development. A d d i t i o n a l l y , i n many s o c i a l i s t and developing countries of the world, state monopoly of foreign trade and regulation of investment contracts i s considered an in e v i t a b l e part of t h e i r national economic l i f e . In t h i s respect, the state and i t s agencies become pa r t i e s to commercial transactions with nationals of other countries. Commercial r e l a t i o n s between the state and private p a r t i e s are also evident i n developed countries where governments and t h e i r agencies sometimes engage foreign experts i n domestic projects. Providing a suitable c o n f l i c t r e s o l u t i o n machinery to such commercial agreements may pose considerable problems. I t i s obvious that the nature of p o l i c y considerations engendered by transnational contracts involving state p a r t i e s are not conterminous with those involving only p r i v a t e p a r t i e s . F i r s t , 2 i n the former case, p o l i t i c a l considerations creep i n and a state may well refuse to submit the dispute between i t and a foreign national to the municipal courts of another state. Again, the foreign national may not have confidence i n the a b i l i t y of the municipal court of the state party to do j u s t i c e i n the case. This has l e d a commentator to state that where a state and a national of another state are p a r t i e s to a commercial , agreement, " a r b i t r a t i o n imposes i t s e l f f o r lack of an acceptable a l t e r n a t i v e " . [Park, " A r b i t r a t i o n of International Contract Disputes" The Business' Lawyer (1984), 39] The willingness to submit such disputes to , a r b i t r a t i o n i s as a r e s u l t of the s u i t a b i l i t y of a r b i t r a t i o n f o r the needs of i n t e r n a t i o n a l commerce. As one writer comments: "In the context of i n t e r n a t i o n a l trade,. the discordant p a r t i e s w i l l be from d i f f e r e n t parts of the world, with corresponding d i f f e r e n t world views, culture and l e g a l systems. I d e a l l y a r b i t r a t i o n provides a f l e x i b l e mutually acceptable means of c o n f l i c t r e s o l u t i o n because the process i s consensual': one party i s not dragged u n w i l l i n g l y . into court by another." [McLaughlin, " A r b i t r a t i o n and Developing Countries" 13 International Lawyer 211, 212 (1979)] Today, a r b i t r a t i o n of state contract disputes constitutes one quater of the disputes submitted to ICC a r b i t r a t i o n . P a r t i c i p a t i o n of states i n i n t e r n a t i o n a l a r b i t r a t i o n gives r i s e to the problem of sovereign immunity and i t s possible e f f e c t on the e f f i c a c y of the a r b i t r a l process. The areas i n which the concept may a f f e c t the operation of the a r b i t r a l process are wide. They include areas such as immunity from j u r i s d i c t i o n , a p p l i c a t i o n of interim measures of protection and state immunity from execution. 3 An a r b i t r a t i o n cannot be e n t i r e l y conducted without assistance from the municipal court system. Municipal courts may be resorted to f o r matters such as the appointment of a r b i t r a t o r s , control of the~ a r b i t r a l t r i b u n a l ' s j u r i s d i c t i o n and the s e t t i n g aside of awards. A pertinent question i n a r b i t r a t i o n of state contract disputes i s the e f f e c t of consent to a r b i t r a t i o n on the p r i n c i p l e of immunity. Does such consent amount to waiver of j u r i s d i c t i o n a l immunity and immunity from execution? I t seems obvious that the objectives of an a r b i t r a t i o n may be rendered nugatory i f a claimant cannot obtain court assistance both i n the conduct of the a r b i t r a t i o n and i n enforcing any ensuing award. The goal of the th e s i s s h a l l be to explore the i n t e r -r e l a t i o n s h i p between international commercial a r b i t r a t i o n and the sovereign immunity p r i n c i p l e . I t s h a l l also suggest ways i n which the l a t t e r may be made amenable to the objectives o f the former. \ \ 2. SCOPE OF STUDY State immunity i s twin faceted. ~ I t breaks down into j u r i s d i c t i o n a l immunity and immunity from execution. The the s i s s h a l l examine whether the plea of j u r i s d i c t i o n a l immunity can be raised before an a r b i t r a t o r or a municipal court which seeks to assume j u r i s d i c t i o n f o r purposes a u x i l i a r y to the a r b i t r a t i o n . I t s h a l l also examine the permissible extent to which an award may be enforced against a state party. The International Convention f o r the Settlement of Investment Disputes s h a l l further be examined because part 4 of i t s objective i s to~~mitigate the r i g o r s attendant i n the a r b i t r a t i o n of state contract disputes. In some instances a state may seek to grant immunity to i t s e l f by enacting l e g i s l a t i o n precluding i t s agencies from entering into a r b i t r a t i o n agreements. The obj e c t i v e of such l e g i s l a t i o n i s to make . i t impossible for ; t h i r d p a r t i e s to ar b i t r a t e any dispute with the state agencies concerned. The thesis s h a l l not consider the e f f e c t of such l e g i s l a t i o n s . The immunity sought to be claimed i n Jsuch instances does not re l a t e to the doctrine of sovereign immunity i n international l a w . • • ' ' 3. METHOD OF STUDY V " Etymologically, international commercial transaction i s connotative of a transaction which transcends . - m u n i c i P a l boundaries. I t follows that any meaningful study of the law i n t h i s area must be comparative i n character. In l i n e with t h i s goal, the the s i s s h a l l make a comparative survey of l e g i s l a t i v e and j u d i c i a l p r a c t i c e i n selected common and c i v i l law j u r i s d i c t i o n s . The thesis s h a l l confront each problem from both p r a c t i c a l and t h e o r e t i c a l perspectives. P r a c t i c a l l y , the thesis s h a l l analyze state p r a c t i c e i n selected countries with the objective of discovering which method best accords with the p r a c t i c a l needs of society. Where appropriate, a th e o r e t i c a l evaluation of the present state of the law w i l l be car r i e d out. 5 4. PLAN OF STUDY The t h e s i s s h a l l be structured into three broad parts. The f i r s t part s h a l l deal with the impact of j u r i s d i c t i o n a l immunity on in t e r n a t i o n a l commercial a r b i t r a t i o n . Can a state plead j u r i s d i c t i o n a l immunity before municipal courts? Enforcement of an ensuing award i s the ultimate objective of a claimant i n an a r b i t r a l proceeding. To what extent can awards be enforced against a state party? I f such awards are enforceable against a state, can they be enforced i n a l l j u r i s d i c t i o n s where the state has assets? What nature of state property i s susceptible to measures of execution? Providing answers to these .questions s h a l l be "the task of the second part. -The l e g a l regime under the International Convention for the Settlement of Investment Disputes s h a l l be examined i n the t h i r d part. The centre i s , to a c e r t a i n extent, an i n s t i t u t i o n a l response to the problems of sovereign immunity i n transnational a r b i t r a t i o n r e l a t i n g to investment? Is i t su c c e s s f u l l y so? 6 CHAPTER ONE THE SOVEREIGN IMMUNITY DOCTRINE A. THE GENEROUS DOCTRINE Sovereign immunity i s a doctrine of in t e r n a t i o n a l law under which domestic courts, i n approaching cases,;relinquish ! j u r i s d i c t i o n over a foreign s t a t e . 1 Under the doctrine, a sovereign state cannot be impleaded i n the municipal courts of another state, except i n cases where i t attorns to j u r i s d i c t i o n . -The Anglo-American concept of sovereign immunity derives i t s roots from i n t e r n a t i o n a l comity and the concept of national sovereignty. The doctrine was l a r g e l y a legacy of the maxim: "The King can do no wrong". Under the common law, i t was considered a c o n s t i t u t i o n a l i m p o s s i b i l i t y to implead a domestic sovereign. In the words of Mr J u s t i c e Holmes, state immunity i s based "on the l o g i c a l and p r a c t i c a l ground that there can be no l e g a l r i g h t s as against the authority that makes the law on which the r i g h t s depend". 2 No proceeding, c i v i l or crim i n a l , was maintainable against the sovereign i n person, f o r , i t was said, the courts, being the King's own, could have no j u r i s d i c t i o n over him. C o n s t i t u t i o n a l l y speaking, the King p e r s o n i f i e d the state; therefore, the courts which formed part of the central government of the state could not l o g i c a l l y exercise j u r i s d i c t i o n over the sovereign, i n whose name and i n whose name only, they could a c t . J Before 1947 i n England, one of the methods by which redress could be sought against the crown i n the courts was by way of p e t i t i o n of r i g h t s . 4 This p r i n c i p l e of immunity was transposed into i n t e r n a t i o n a l law, thereby making foreign states immune from the j u r i s d i c t i o n of municipal courts. The doctrine i s also j u s t i f i e d on the basis of i n t e r n a t i o n a l comity. I t was f e l t that i t would be an affront on the p r i n c i p l e of sovereign equality of nations and an erosion of i t s dignity; f o r a foreign state to be impleaded before municipal courts. In The Prins F r e d r i k 5 . the court declined j u r i s d i c t i o n on the ground that the foreign state, as p e r s o n i f i e d by the foreign sovereign, _was equally sovereign and independent and that to implead him would i n s u l t h i s " r e a l d i g n i t y " . Lord Campbell C.J. was of a s i m i l a r view i n Haber v. The Queen of Portugal 6: "To c i t e a foreign potentate i n a municipal court, f o r any complaint against him i n h i s public capacity, i s contrary to the law of nations, and an i n s u l t which he i s e n t i t l e d to resent." 7 The U.S. was the f i r s t to apply the sovereign immunity p r i n c i p l e . In The Schooner Exchange v. McFadden 8, a vessel owned by a United States c i t i z e n was seized by the French government and remodeled i n France as a p u b l i c armed ship. When a storm forced the ship into a U.S. harbour, the U.S. c i t i z e n commenced an admiralty action against the French government. The court granted immunity to the government. Marshall, C.J., said: "One sovereign being i n no respect amenable to another, and being bound by obligations of the highest character not to degrade the d i g n i t y of h i s 8 n a t i o n , b y p l a c i n g h i m s e l f o r i t s s o v e r e i g n r i g h t s w i t h i n t h e j u r i s d i c t i o n o f a n o t h e r , c a n b e s u p p o s e d t o e n t e r a f o r e i g n t e r r i t o r y o n l y u n d e r a n e x p r e s s l i c e n s e , o r i n t h e c o n f i d e n c e t h a t t h e i m m u n i t i e s b e l o n g i n g t o h i s i n d e p e n d e n t s o v e r e i g n s t a t i o n , t h o u g h n o t e x p r e s s l y s t i p u l a t e d , a r e r e s e r v e d b y i m p l i c a t i o n , a n d w i l l b e e x t e n d e d t o h i m . " 9 T h e P a r l e m e n t B e i g e 1 0 o f f e r e d t h e f i r s t a u t h o r i t a t i v e s t a t e m e n t o f • t h e p r i n c i p l e i n E n g l a n d . T h e c o u r t g r a n t e d i m m u n i t y t o a m a i l p a c k e t o w n e d b y t h e B e l g i a n m o n a r c h a n d o p e r a t e d b y B e l g i a n n a v y p e r s o n n e l : " T h e p r i n c i p l e t o b e d e d u c e d f r o m t h e c a s e s i s t h a t , a s a c o n s e q u e n c e o f t h e a b s o l u t e i n d e p e n d e n c e o f e v e r y s o v e r e i g n a u t h o r i t y , a n d o f t h e i n t e r n a t i o n a l c o m i t y w h i c h i n d u c e s e v e r y s o v e r e i g n s t a t e t o r e s p e c t t h e i n d e p e n d e n c e a n d t h e d i g n i t y o f e v e r y o t h e r s t a t e , e a c h a n d e v e r y o n e d e c l i n e s t o e x e r c i s e b y m e a n s o f i t s c o u r t s : a n y o f i t s t e r r i t o r i a l j u r i s d i c t i o n o v e r t h e p e r s o n o f a n y s o v e r e i g n o r a m b a s s a d o r o f a n y s t a t e w h i c h i s d e s t i n e d t o p u b l i c u s e . . . " 1 1 T h e U . S . S u p r e m e C o u r t i n B e r i z z i B r o s v . T h e S t e a m s h i p P e r a s o 1 2 f o l l o w e d t h e E n g l i s h d e c i s i o n i n t h e P a r l e m e n t B e i g e b y h o l d i n g t h a t p u b l i c p r o p e r t y d e s t i n e d f o r p u b l i c u s e w a s v i m m u n e f r o m t h e j u r i s d i c t i o n o f m u n i c i p a l c o u r t s . T h e y a l l o w e d a n e x p a n s i v e d e f i n i t i o n o f " p u b l i c p u r p o s e " i n r e l a t i o n t o t h e a c t i v i t i e s o f s o v e r e i g n s . T h e d o c t r i n e w a s r e - a f f i r m e d i n T h e P o r t o A l e x a n d e r " : " A s o v e r e i g n s t a t e c a n n o t b e i m p l e a d e d d i r e c t l y o r b y b e i n g s e r v e d i n p e r s o n , o r i n d i r e c t l y b y p r o c e e d i n g a g a i n s t i t s p r o p e r t y a n d t h a t i n a p p l y i n g t h a t p r i n c i p l e i t m a t t e r s n o t h o w t h e p r o p e r t y w a s b e i n g e m p l o y e d . " 1 4 T h e t h r u s t o f t h i s g e n e r o u s t h e o r y o f i m m u n i t y w a s t h a t i m m u n i t y w a s g r a n t e d i r r e s p e c t i v e o f t h e n a t u r e o f t r a n s a c t i o n e n g a g e d i n b y t h e s o v e r e i g n . T h e c o u r t s g r a n t e d a v e r y b r o a d 9 i n t e r p r e t a t i o n t o t h e c o n c e p t o f p u b l i c u s e o f g o v e r n m e n t a l p r o p e r t y . The e f f e c t o f t h i s d o c t r i n e was t h a t i t was p r a c t i c a l l y i m p o s s i b l e t o i m p l e a d a s o v e r e i g n s t a t e i n t h e m u n i c i p a l c o u r t o f a n o t h e r c o u n t r y . A s a m a t t e r o f p o l i c y , t h e a b s o l u t e d o c t r i n e o f s o v e r e i g n i m m u n i t y i s g r o u n d e d o n t h e p r i n c i p l e o f t h e i n d e p e n d e n c e , t h e e q u a l i t y , a n d t h e d i g n i t y o f s t a t e s . The maxim p a r i n pa r e m n o n h a b e t i m p e r i u m f o l l o w s d i r e c t l y f r o m t h i s c o n s i d e r a t i o n . A s s u m p t i o n o f j u r i s d i c t i o n o v e r . . a f o r e i g n s t a t e was c o n s i d e r e d a s u b j u g a t i o n o f h e r s o v e r e i g n s t a t u s a n d a n a f f r o n t t o h e r d i g n i t y . B. THE R E S T R I C T I V E THEORY S i n c e t h e s e c o n d w o r l d w a r , t h e r e h a s b e e n a g r a d u a l d e c l i n e i n t h e a p p l i c a t i o n o f t h e a b s o l u t e i m m u n i t y d o c t r i n e . A n i m p o r t a n t f a c t o r i n t h i s d e v e l o p m e n t i s t h e i n c r e a s e d p a r t i c i p a t i o n o f s t a t e s i n c o m m e r c i a l a c t i v i t i e s . I n many s o c i a l i s t a n d d e v e l o p i n g c o u n t r i e s o f t h e w o r l d , s t a t e m o n o p o l y o f f o r e i g n t r a d e a n d r e g u l a t i o n o f i n v e s t m e n t c o n t r a c t s i s c o n s i d e r e d a n i n e v i t a b l e p a r t o f t h e n a t i o n a l e c o n o m i c l i f e . I t was b e l i e v e d t h a t i t w o u l d b e u n c o n s c i o n a b l e f o r s t a t e s t o p a r t a k e i n c o m m e r c i a l a c t i v i t i e s w i t h o u t h a v i n g t o c o n t e n d w i t h t h e e v e r y d a y r e a l i t i e s o f t h e m a r k e t p l a c e . I n E n g l a n d , i n d i v i d u a l j u d g e s e x p r e s s e d o p p o s i t i o n t o i m m u n i t y i n t h e c o n t e x t o f c o m m e r c i a l a c t i v i t i e s . 1 5 I n R a c h i m t o o l a v . N i z a m o f H y d e r a b a d 1 6 . L o r d D e n n i n g c h a l l e n g e d t h e a b s o l u t e i m m u n i t y d o c t r i n e a n d s u g g e s t e d t h a t i m m u n i t y s h o u l d d e p e n d e s s e n t i a l l y o n t h e n a t u r e o f t h e d i s p u t e : 10 " I f the dispute brings into question, f o r instance, the l e g i s l a t i o n or i nternational transactions of a foreign government, or the p o l i c y of i t s executive, the court should grant immunity i f asked to do so, because i t does offend the d i g n i t y of a foreign sovereign to have the merits of such disputes canvassed i n the domestic courts of another country; but i f the dispute concerns, f o r instance, the commercial transactions of a foreign government (whether c a r r i e d on by i t s own department or agencies or by s e t t i n g up separate l e g a l e n t i t i e s ) , and i t :arises properly - within the t e r r i t o r i a l j u r i s d i c t i o n of our courts, there i s no ground f o r granting immunity." 1 7 An opportunity was afforded the Privy Council to deal with the issue i n The P h i l i p p i n e Admiral C a s e 1 8 . The Council adopted the r e s t r i c t i v e immunity doctrine by r e g i s t e r i n g i t s opposition to the application of sovereign immunity to "ordinary trading t r a n s a c t i o n s " . 1 9 The English Court of Appeal i n Trendtex Trading Corporation Ltd. v. The Central Bank of N i g e r i a ^ " held, by a majority decision, that sovereign immunity was no longer applicable to ordinary trading transactions, and that the r e s t r i c t i v e doctrine of immunity should be applied to both actions i n personam as well\as those i n rem. The r e s t r i c t i v e theory of immunity" grants immunity to public acts of states ( i . e . acta jure i m p e r i i ) , but denies immunity to t h e i r private acts ( i . e . acta jure g e s t i o n i s ) . Under t h i s theory, a state loses i t s immunity whenever i t engages i n commercial a c t i v i t i e s . In the U.S. there has been a decline i n the adherence to the absolute immunity doctrine since the 1940's. To mitigate the hardships of the doctrine i n commercial a c t i v i t i e s , the U.S. used t r e a t i e s of friendship, commerce and navigation to 11 regulate the ap p l i c a t i o n of the immunity doctrine; For example, A r t i c l e XVIII of the Treaty of Friendship, Commerce and Navigation between the U.S. and Denmark 2 1 provides: "3. No enterprise of e i t h e r Party, including corporations, associations, and government agencies and instrumentalities, which i s p u b l i c l y owned or co n t r o l l e d s h a l l , i f i t engages i n commercial a c t i v i t i e s within the t e r r i t o r i e s of the other Party, claim or enjoy, e i t h e r f o r i t s e l f or for i t s property, immunity from taxation, s u i t , execution of judgment or other l i a b i l i t y to which p r i v a t e l y owned and co n t r o l l e d enterprises are subject therein." .In 1952, the Tate L e t t e r 2 2 o f f i c i a l l y declared the State Department 1s abandonment of the absolute immunity theory and i t s adoption of the r e s t r i c t i v e theory. Immunity was only to be granted where the sovereign state engaged i n non-commercial a c t i v i t i e s . This r e s t r i c t i v e theory of immunity has been accepted by a majority of c o u n t r i e s . 2 3 The modern ra t i o n a l e f o r the theory of sovereign immunity was stated by Monroe Leigh as being: "to promote the functioning of a l l governments by protecting a state from the burden of defending law s u i t s abroad which are based on i t s p u b l i c acts. However, when the foreign state enters the market place or when i t acts as a privat e party, there . would be no j u s t i f i c a t i o n i n the modern int e r n a t i o n a l law of sovereign immunity -for allowing the foreign state to avoid the economic costs of the agreement i t breaches or the accidents i t creates; the law should not permit the foreign state to s h i f t these everyday burdens of the market place unto the shoulders of private p a r t i e s . " 2 4 The p o s i t i o n then i s that a state i s only immune ' from j u r i s d i c t i o n i n respect of i t s p u b l i c acts. This theory i s subj ect to the c r i t i c i s m that the immunity granted to sovereign states was not due to t h e i r p u blic a c t i v i t i e s , but rather as a r e s u l t of t h e i r character as sovereign states, and 12 the need to promote international comity. Furthermore, the d i s t i n c t i o n between public and private acts i s as a r b i t r a r y as i t i s unreal. The primary objective of states i s the promotion of the welfare of i t s people. This objective i s i n t r i n s i c a l l y of a pu b l i c nature. Consequently, the means by which a state seeks to ac t u a l i z e t h i s objective should not be used as a reason to categorize i t s a c t i v i t i e s as privat e i n nature. A state does not cease to exercise sovereign public functions when i t enters into commercial a c t i v i t i e s i n order to meet the needs of i t s c i t i z e n s . The t h e o r e t i c a l a t t r a c t i o n ' of the above argument i s d i l u t e d by the r e a l i z a t i o n that a state may injure i t s commercial partners by exercising i t s absolute immunity from j u r i s d i c t i o n where disputes a r i s e between them. I t i s only f a i r that where a state engages i n commercial a c t i v i t i e s , those dealing with i t should have an avenue of seeking redress should the need a r i s e . I t was the extensive engagement of states i n industry and trading a c t i v i t i e s , and the increasing acceptance of the concept of "the rul e of law" by a majority of the developed countries that hastened the acceptance of the r e s t r i c t i v e t h e o r y . 2 5 The absolute immunity p r i n c i p l e was designed to cover the p o l i t i c a l a c t i v i t i e s of the state as a sovereign e n t i t y ; i t i s thus i l l - s u i t e d f o r an era where state p a r t i c i p a t i o n i n commercial a c t i v i t i e s i s the rule rather than the exception. When government a c t i v i t i e s were l i m i t e d l a r g e l y to m i l i t a r y a f f a i r s , p o l i c e matters, administration of j u s t i c e and providing the f i n a n c i a l means of such operations, there 13 _ was l i t t l e need for a review of the orthodox theory. State p a r t i c i p a t i o n i n commercial a c t i v i t i e s has transformed the horizon. The increasing contact between pr i v a t e p a r t i e s and states i n the arena of commercial a c t i v i t i e s argued the need for a review of the doctrine ^exempting states from the j u r i s d i c t i o n of foreign courts. The r e s t r i c t i v e theory attempts to modify the .absolute theory i n l i n e with the contemporary r o l e of states i n society.; The doctrine of the r u l e of law was also instrumental to the s h i f t to the r e s t r i c t i v e theory of immunity. The r u l e of law "was . p a r t i c u l a r l y h e l p f u l i n upholding the " r i g h t of c i t i z e n s to sue t h e i r states before municipal courts. In the United Kingdom, the Crown Proceedings Act of 1947 abolished the p e t i t i o n of r i g h t s and made the crown l i a b l e to private law and l i a b i l i t i e s , including l i a b i l i t y i n t o r t and, to a large extent, s u i t i n the ordinary courts. In the U.S., J u s t i c e Franfurter observed i n 1939 that "the present climate of opinion...has brought governmental immunity from s u i t into d i s f a v o u r " . 2 6 In 1949 the U.S. Supreme Court stated that "The Congress has increasingly permitted such " s u i t s to be maintained against the sovereign and we should give hospitable scope to that t r e n d " . 2 7 This development which enabled c i t i z e n s to bring l e g a l proceedings against the crown i n a large number of cases, cleared the path f o r the extension of the p r i n c i p l e to foreign states. As indicated i n the e a r l i e r part of t h i s paper, the absolute immunity doctrine was p a r t l y an adjunct of the theory that the crown could do no wrong and could therefore not be 14 sued i n domestic courts. With the decline i n the scope and app l i c a t i o n of that municipal doctrine, there was the need to adjust the absolute immunity granted to foreign states. In the words of Lauterpacht: "The d i g n i t y jof foreign states i s no more impaired by t h e i r being subjected to the law, i m p a r t i a l l y applied, of a foreign country, than i t i s by submission to t h e i r own law". 2 8 The r e s t r i c t i v e theory of immunity does not enjoy universal .acceptance. / -.Soviet i n t e r n a t i o n a l l e g a l theory r e j e c t s the ap p l i c a t i o n of the r e s t r i c t i v e theory to acts of a s o c i a l i s t state, on the basis that a d i s t i n c t i o n cannot be made between acts of a s o c i a l i s t state which are of a public nature and acts which are of a private ^nature. The p r e v a i l i n g Soviet p o l i t i c a l theory i n s i s t s that a state does not cease to be a sovereign merely because the state i s performing functions that are t r a d i t i o n a l l y reserved f o r private persons i n a n o n - s o c i a l i s t l e g a l system. 2 9 C. WAIVER OF IMMUNITY UNDER THE COMMON LAW There i s no fundamental p r i n c i p l e p r o h i b i t i n g the waiver of j u r i s d i c t i o n a l immunity. A municipal court may assume j u r i s d i c t i o n over a foreign sovereign i f the l a t t e r waives i t s j u r i s d i c t i o n a l immunity. I f a foreign state commences an action as a p l a i n t i f f or appears without protest as a defendant i n an action, he i s deemed to attorn to j u r i s d i c t i o n with respect to those proceedings. English courts required a genuine and unequivocal submission to the j u r i s d i c t i o n of the court. In Duff Development Co. v. Kelentan J . the House of Lords held that a clause i n a contract whereby the respondent sovereign agreed to the provisions of the A r b i t r a t i o n Act, 1889, and i t s e l f attempted to take advantage of the clause by going to a r b i t r a t i o n , was not s u f f i c i e n t waiver of i t s immunity. In the courts view, f o r a waiver to be e f f e c t i v e , the undertaking c o n s t i t u t i n g the waiver must be made to the court i t s e l f and not to a t h i r d party. Lord Sumner said: "The Sultan's contract to a r b i t r a t e i n .accordance with the A r b i t r a t i o n Act i s not,'either i n i t s e l f or i n combination with anything else i n t h i s case, a submission to the j u r i s d i c t i o n of the High Court. I t i s not an undertaking given to the court i t s e l f . I t i s an agreement i n t e r partes, and no more ... Sovereigns, however, are not amenable at a l l , except by t h e i r own consent, and there i s no p r i n c i p l e upon which such consent can be deemed to have been given short of action taken towards the court i t s e l f , such as i s commonly c a l l e d a submission to j u r i s d i c t i o n . " 3 1 Lord Carson, i n a dissenting opinion, posited that the a r b i t r a t i o n clause constituted a waiver of immunity. His lordship contended that since the Kelentan Government vould have sought to enforce the award i f i t were the successful party, i t would be unjust not to enforce the award against the government when i t i s the unsuccessful p a r t y . 3 2 The English Court of Appeal i n Kahan v. Pakistan F e d e r a t i o n 3 3 refused to hold that a clause expressly stating that the Pakistani Government "agree to submit f o r the purpose of t h i s agreement to the j u r i s d i c t i o n of the English court" was an e f f e c t i v e waiver. Jenkins L.J. said: "... no mere agreement i n t e r partes to the e f f e c t that a foreign sovereign should submit to the j u r i s d i c t i o n of the court can s u f f i c e to give the 1 6 court j u r i s d i c t i o n .in the event of the foreign sovereign choosing to r e s i l e from i t . Actual submission before the court i t s e l f , and nothing short of that i s r e q u i r e d . " 3 4 I t could be deduced form the above cases that for a waiver to be e f f e c t i v e under the common law, the foreign sovereign must waive i t s -immunity by an action directed towards the court i t s e l f . Nothing l e s s than that would s u f f i c e . This point i s further i l l u s t r a t e d by the decision i n Micrhell v. Sultan of J o h o r e 3 5 : ' ; -"What i s the time at which he can be said to e l e c t to whether he w i l l submit. to the j u r i s d i c t i o n ? Obviously, as i t appears to me, i t i s when the court i s about or i s being asked to exercise j u r i s d i c t i o n over him, and not any previous time. Although up to that time he had p e r f e c t l y concealed the f a c t that he i s a sovereign, and has acted as a private i n d i v i d u a l , yet i t i s only when the time comes that the court i s asked to exercise j u r i s d i c t i o n over him that he can el e c t whether he w i l l submit to the j u r i s d i c t i o n . I f i t i s then shown that he i s an independent sovereign and does not submit to the j u r i s d i c t i o n , the court has no j u r i s d i c t i o n over him. I t follows from t h i s that there can be no inquiry by the court into h i s conduct p r i o r to that d a t e . " 3 6 I t may be concluded that under the common law, a foreign sovereign can only attorn to the j u r i s d i c t i o n of a municipal court by an act of submission before the court i t s e l f . In the words of Lopez, L.J., "the only mode i n which a sovereign can submit to the j u r i s d i c t i o n i s by a submission i n the face of the c o u r t " . 3 7 I t should be noted that, as we s h a l l see i n the following discussion, t h i s r u l e has been changed by the U.K. State Immunity A c t . 3 8 17 FOOTNOTES 1 U.S. H.R. Rep. No. 94-1487, 94 Cong., 2d Sess. 8 (1976). 2 See Kawananakoa v. Polyblank (1907) 205 U.S. 349,-353. 3 Sucharitkul, State Immunities and Trading A c t i v i t i e s i n International Law (Steven & Sons, London, 1959), 4. 4 Halsburv's Laws of England. Vol. 11, Para. 1411. 5 (1820) 2 Dods. 451. 6 (1851) 17 Q.B. 171. 7 Id. at 207. ; 8 7 Cranch 116 (1812). 9 i d . • • ; 1 0 (1880) 5 P.D. 197. — ' 1 1 Per Brett L.J. Id. at 214-215. 1 2 271 U.S. 562 (1926). 1 3 [1920] P. 30. 1 4 Id. at 31. 1 5 See Baccus S.R.L. v. Ser v i c i o del Trigo [1958] 1 Q.B. 438 (per Singleton L.J.); Rachimtoola v. Nizam of Hyderabad [1958] A.C. 379 at 415-24 (per Lord Denning). 1 6 [1958] A.C. 379. 1 7 The majority of the House of Lords did not endorse t h i s approach. 1 8 [1976] 2 W.L.R. 214. 1 9 Id. at 232-3. 20 ^ 7 7 ] Q.B. 529. 2 1 421 U.N.T.S. 105. 2 2 26 Dept. State B u l l . 984 (1952). The State Department gave i t s reason for adopting the r e s t r i c t i v e theory as follows: 18 "The Department f e e l s that the widespread and increasing p r a c t i c e on the part of governments of engaging i n commercial a c t i v i t i e s makes necessary a practice which w i l l enable persons doing business with them to have t h e i r r i g h t s determined i n the courts. For these reasons i t w i l l hereafter be the Department's policy to follow the r e s t r i c t i v e theory of sovereign immunity i n the consideration of requests of foreign governments f o r a grant of immunity." See 26 Dept. State B u l l . 985 n. 13. 2 3 On I t a l i a n Law, see Borga v. Russian Trade Delegation 22 I.L.R. (1955) 235; f o r Egypt, see F. P. R. of Yugoslavia v. Kafr El-Zavat Cotton Ltd. 18 I.L.R. (1951) 54: for Netherlands, see Krol v. Bank of Indonesia 26 I.L.R. (1958, 11) 180; f o r Canada, see Venne v. D.R. of Congo [1969] 5 D.L.R. (3d) 128. 2 4 Testimony before the Subcomm. on Administrative Law and Government Relations, U.S. House Judiciary Conm. (1976); reprinted i n 70 Am. J . I n t ' l L. 13, 14 (1983). 2 5 See lauterpacht, "The Problem of J u r i s d i c t i o n a l Immunities of Foreign States" 28 B r i t . Y.B.I.L. 220 (1951). A K e i f e r & K e i f e r v. Reconstruction Finance Corporation 306 U.S. 381 (1939). 2 7 Larson v. Domestic and Foreign Commerce Corp. 337 U.S. 682, 703. 2 8 Lauterpacht, supra note 25, 231. 2 9 See Osakwe, "A Soviet Perspective on Foreign Sovereign Immunity : Law and Practice" 23 V i r g i n i a J. I n t ' l L. 13, 14 (1983) 30 [1924] A.C. 797. 31 Id. at 829. 32 Id. at 834-35. 33 [1951] 2 K.B. 1003. 34 Id. at 1016. 35 [1894] 1 Q.B. 149. 36 Id. at 159. 37 Id. at 160. 19 S. 9 of the Act provided: "(1) Where a state' has agreed i n wr i t i n g to submit a dispute which has arisen, or may a r i s e , to a r b i t r a t i o n , the state i s not immune as respects proceedings i n the courts of the United Kingdom which r e l a t e to the a r b i t r a t i o n . " S. 2 of the Act provides: "(1) A state i s not immune as respects proceedings i n respect of which i t has submitted to the j u r i s d i c t i o n of the United Kingdom. (2) A state may submit a f t e r the dispute g i v i n g r i s e to the proceedings has arisen or by a p r i o r written agreement; but a provision i n any agreement that i t i s to governed by the law of the United Kingdom i s not to be regarded as a submission." CHAPTER TWO APPLICABILITY OF SOVEREIGN IMMUNITY BEFORE INTERNATIONAL TRIBUNALS. V A r b i t r a t i o n arises out of the consent of the disputing p a r t i e s . Unlike l i t i g a t i o n within a municipal l e g a l system, no person can be compelled against h i s w i l l to enter into an a r b i t r a t i o n agreement. Indeed one of the most obvious advantages of a r b i t r a t i o n i s party autonomy r e s u l t i n g from the f a c t that a r b i t r a t i o n i s the creation of a contract between the p a r t i e s . 1 Without an a r b i t r a t i o n agreement, the a r b i t r a t o r lacks j u r i s d i c t i o n . I t i s the a r b i t r a t i o n agreement that confers j u r i s d i c t i o n on the a r b i t r a t o r . Apart from i t the a r b i t r a t o r has no power to render a binding award. The sovereign immunity p r i n c i p l e was, as we have seen, aimed at preventing a state from being impleaded i n a foreign state against i t s w i l l . The core of the p r i n c i p l e was that i n the absence of consent, a state cannot be subjected to the j u r i s d i c t i o n of the courts of a foreign state. I t i s not uncommon f o r states to plead j u r i s d i c t i o n a l immunity before i n t e r n a t i o n a l t r i b u n a l s . Such pleas are based on the argument that, as an incident of the sovereign status of states, they cannot be defendants i n an a r b i t r a t i o n . It'seems apparent that the plea of sovereign immunity as a j u r i s d i c t i o n a l bar has l i t t l e relevance i n an a r b i t r a l proceeding. 2 F i r s t l y , an a r b i t r a t i o n proceeding has nothing 21 ' •*;"•. to do with municipal courts. The j u r i s d i c t i o n of the a r b i t r a t o r i s founded on the agreement of the disputing p a r t i e s . Although the agreement i s accorded legitimacy by the municipal l e g a l system, absent the mutual consent of the p a r t i e s , there can be no v a l i d i n t e r n a t i o n a l commercial a r b i t r a t i o n . Although the a r b i t r a l proceedings may have some contacts with municipal l e g a l systems (for example, with regard to the law applicable to procedure, recognition and enforcement of awards) , an a r b i t r a t i o n i s b a s i c a l l y conducted within the framework of the system created or adopted by the p a r t i e s . Therefore, a sovereign cannot claim that i t i s being impleaded i n a municipal court against i t s w i l l . : Secondly, an a r b i t r a t i o n can only take place with the consent of the p a r t i e s . This element of consent i s c r u c i a l to the v a l i d i t y of an a r b i t r a t i o n . Without i t there can be no v a l i d a r b i t r a t i o n . 3 As Redfern and Hunter point out: "The a r b i t r a l proceedings are seen as an expression of the w i l l of the, p a r t i e s and, on the basis of party autonomy i t i s sometimes argued that i n t e r n a t i o n a l commercial a r b i t r a t i o n should be freed from the r e s t r a i n t s of national law and treated as denationalised or delocalised". I f a r b i t r a t i o n proceeds from the consent of the parties, a state cannot plead immunity before a r b i t r a t o r s . Assuming, but not conceding, that the theory of sovereign 1 immunity i s applicable to a r b i t r a l proceedings, i t ought to be held that a state by consenting to a r b i t r a t i o n waives i t s immunity before the a r b i t r a l t r i b u n a l . Even within the municipal court system, a state may waive i t s j u r i s d i c t i o n a l immunity by attorning to the j u r i s d i c t i o n of the c o u r t . 5 I t should, however, be pointed out that the onus to prove the existence of the a r b i t r a t i o n agreement l i e s on the claimant. I f the existence of such an agreement i s established i n evidence, the state party cannot be heard to plead immunity from j u r i s d i c t i o n . In the words of the a r b i t r a t o r s i n SPP (Middle East) Ltd. v. Arab Republic of Egypt 6; "In approaching t h i s general question of j u r i s d i c t i o n , one must begin by.noting that the onus of •proving an agreement to submit a p a r t i c u l a r dispute or disputes to a r b i t r a t i o n rests upon the claimant. At l e a s t i n the normal .case, s p e c i a l care i s required where an independent sovereign i s alleged to have made a submission f o r i t would amount to a waiver of any immunity that i t would otherwise possess." 7 _ : There i s an overwhelming consensus among a r b i t r a t o r s that a plea of sovereign immunity does not have a p p l i c a t i o n i n a r b i t r a l proceedings. Although the conclusion ar r i v e d by a r b i t r a t o r s i s b a s i c a l l y the same, the approaches adopted have been d i s s i m i l a r . A review of some a r b i t r a l awards w i l l reveal t h i s f a c t . -In ICC Case 2321 8, the a r b i t r a t o r was s i t t i n g i n Sweden i n a dispute between two enterprises as claimants and, as defendants, a foreign state and a public authority of the l a t t e r . The claim against the state was based on the f a c t that i t had i n a contract guaranteed a commercial transaction entered into by the public authority. Before going into the merits of the case, the a r b i t r a t o r was c a l l e d upon to decide, i n t e r a l i a , the issue of h i s j u r i s d i c t i o n . The defendant claimed immunity based on i t s national law because i t was the proper law of the contract. The claimant, on the other hand, submitted that Swedish law should apply as 23 the a r b i t r a t i o n proceedings were taking place i n Sweden. Swedish law was s a i d not to grant immunity i n s i t u a t i o n s such as the present. The a r b i t r a t o r refused t o ~ apply any set of national laws: "I myself do not see the need fo r r e f e r r i n g to any p a r t i c u l a r set of national law rules or the court p r a c t i c e of any p a r t i c u l a r country i n t h i s respect. Whichever the proper law of the contract may be, t h i s has nothing to do with the defense of sovereign immunity. 1 , 9 ..;„•'. ;- ...V He went ahead to stress the f a c t that an a r b i t r a t o r does not conduct the a r b i t r a l proceeding within the framework of a municipal l e g a l system: "As a r b i t r a t o r I am myself no "representative or organ of any state. My authority as a r b i t r a t o r rests upon an agreement between the p a r t i e s to the dispute and by my a c t i v i t i e s I do not, as state judges or other state representatives do, engage the r e s p o n s i b i l i t y of the state of Sweden. Furthermore, the courts and other authorities of Sweden can i n no way i n t e r f e r e with my a c t i v i t i e s as a r b i t r a t o r , neither d i r e c t me to do anything which I think I should not do nor to d i r e c t me to abstain from doing anything which I think I should do." 1 0 \ He further stated that the doctrine of immunity has no a p p l i c a t i o n i n a r b i t r a l proceedings: "As I do not consider the doctrine of "immunity to have any a p p l i c a t i o n whatsoever i n a r b i t r a t i o n proceedings which are, as i n Sweden, conducted independently from the l o c a l courts, i t would not be necessary to enter upon the question of waiver of immunity and the view apparently held by some English, judges that any waiver must be i n f a c i e curiae. He concluded by pointing out that the question of immunity i s i r r e l e v a n t i n a r b i t r a l proceedings, i r r e s p e c t i v e of whether the subject matter of the dispute i s a matter jure gestionis or jure imperii. The d i s t i n c t i o n , he pointed out , 24 i s not relevant once the pa r t i e s have agreed upon a r b i t r a t i o n . 1 2 In SPP (Middle East) Ltd. v. The Arab Republic of E g y p t 1 3 f the a r b i t r a t o r s appear to be of the view that the doctrine of sovereign immunity i s applicable to a r b i t r a t i o n proceedings, although they held that consent to a r b i t r a t i o n amounted to a waiver of such immunity: "The issue i s whether submission to i n t e r n a t i o n a l a r b i t r a t i o n by states and public e n t i t i e s should be regarded as an i m p l i c i t waiver of immunity thus preventing -concurrent >. a p p l i c a t i o n of other i n t e r n a t i o n a l or municipal rules granting sovereign immunity. In f i n d i n g upon the governing law, we i m p l i c i t l y answered i n the affirmative. I t would indeed be f r u s t r a t i n g to recognize f u l l force and e f f e c t of general p r i n c i p l e s of i n t e r n a t i o n a l law aimed at protecting foreign investors and then admit that a state may, before an a r b i t r a l t r i b u n a l , r e l y upon domestic or international p r i n c i p l e s granting sovereign immunity as an excuse f o r acts amounting to contractual breaches." 1 4 In ICC Case 1803 1 5. the a r b i t r a t o r posited that the lex a r b i t r i should determine the a p p l i c a b i l i t y of the sovereign immunity doctrine to the a r b i t r a t i o n . He held that under Swiss law (the lex a r b i t r i ) the defendant could not plead immunity: "...I f i n d as a matter of law that, according to the case law of the Swiss Federal Court, the p r i n c i p l e of the immunity of foreign states from l e g a l process i s not an absolute rule of general a p p l i c a t i o n . The Federal Court draws a d i s t i n c t i o n between the foreign state as a sovereign (jure imperii) or as a subject of a private r i g h t (jure g e s t i o n i s ) . Only i n the f i r s t case can i t invoke the p r i n c i p l e of immunity from process. In the •second case the foreign state can be sued before the Swiss Courts; even execution can be l e v i e d against i t . .. I t i s p l a i n , i n my opinion, that i n holding the assets acquired from the Bangladesh Corporation, the People's Republic of Bangladesh i s acting jure g e s t i o n i s . . . " 1 6 I t may be asked i f the circumstances i n which an a r b i t r a t o r can assume j u r i s d i c t i o n over a foreign sovereign 25 are conterminous withTthose where the courts of the forum w i l l do so? The a r b i t r a t o r i n ICC Case 1803 1 7 would answer i n the aff i r m a t i v e . That r e s u l t i s inaccurate. As pointed out by the a r b i t r a t o r i n ICC Case 2321 1 8, the doctrine of sovereign immunity has no a p p l i c a t i o n whatsoever i n proceedings before a r b i t r a t o r s . A r b i t r a t i o n being a product of the agreement of the p a r t i e s , i s not conducted under the auspices of the municipal court process. The a r b i t r a t o r works within the framework created by the p a r t i e s themselves. As f a r as proceedings before a r b i t r a t o r s are concerned, there i s no question of the state party being impleaded i n the municipal courts of another country against i t s w i l l . An even stronger opposition to the approach adopted i n ICC Case 1803 i s why, i f indeed a national law should determine the j u r i s d i c t i o n of an a r b i t r a t o r over a state party, the lex a r b i t r i should be applicable? The seat of a r b i t r a t i o n i s often chosen f o r the reason of convenience rather confidence i n the lex a r b i t r i . In most cases ithe seat of a r b i t r a t i o n has no connection with e i t h e r the p a r t i e s to the a r b i t r a t i o n or the underlying contract. I f any national law at a l l should determine the j u r i s d i c t i o n of an a r b i t r a t o r i n such cases, i t should be the proper law of the contract, that i s the law which has the cl o s e s t and the most substantial connection with the c o n t r a c t . 1 9 Even then, we must r e i t e r a t e that r e s o l u t i o n of the problem does not i n v i t e reference to any system of national law. In LIAMCO v. L i b y a 2 0 , the a r b i t r a t o r was of the view that a state waives i t s sovereign r i g h t s by consenting to an a r b i t r a t i o n agreement. In the instant case he found f o r t i f i c a t i o n f o r t h i s view i n Islamic law and p r a c t i c e : "...a state may always waive i t s so-called sovereign r i g h t s by signing an a r b i t r a t i o n agreement and then by staying bound by i t . Moreover, that r u l i n g i s i n harmony with Islamic Law and Practice, which i s o f f i c i a l l y adopted by Libya. This i s evidenced by many h i s t o r i c a l precedents. For instance, Prophet Muhammed was appointed as an a r b i t r a t o r before Islam by the Meccans, and a f t e r Islam by the Treaty of Medina... He himself resorted to a r b i t r a t i o n i n h i s c o n f l i c t with the t r i b e of Banu Qurayza. Muslim r u l e r s followed t h i s p r a c t i c e i n many i n s t a n c e s . . . " 2 1 .f:. . • "> .-. The a r b i t r a t i o n applied Islamic law and p r a c t i c e as the applicable law since i t was part and parcel of the Libyan law which was chosen by the pa r t i e s as the proper law of the c o n t r a c t . 2 2 A clause i n the LIAMCO concession agreement provided that the applicable law was "the p r i n c i p l e s of law of Libya common to the p r i n c i p l e s of in t e r n a t i o n a l law ... l | 2 3 The a r b i t r a t o r considered t h i s choice of law v a l i d . I t should be pointed out that t h i s approach of determining the j u r i s d i c t i o n of an a r b i t r a t o r over a state party by reference to the proper law of the contract i s not appropriate. Since the doctrine of sovereign immunity was not designed to cover a r b i t r a t i o n , the provisions of the proper law of the contract cannot a l t e r the p o s i t i o n . Although the proper law may be relevant to the capacity of the pa r t i e s to enter into a c o n t r a c t 2 4 , and the substance of obligations a r i s i n g from such c o n t r a c t 2 5 , i t cannot a f f o r d the basis f o r a plea of sovereign immunity before an a r b i t r a l t r i b u n a l . This i s because considerations of sovereign immunity do not arise i n proceedings before a r b i t r a t o r s . 27 This view i s supported by the authors of A r b i t r a t i o n i n Sweden (1984). They are of the view that: "State immunity i s based on the concept of sovereignty, i n the sense that a sovereign may not be subjected without i t s approval to the j u r i s d i c t i o n and exercise of power of the courts and authorities., of another sovereign. In Sweden, however, the a r b i t r a t o r s are regarded as deriving t h e i r authority from the a r b i t r a t i o n agreement. They are not considered to be engaged i n any exercise of sovereign power, and they do not represent the Swedish state. The generally accepted view i n Sweden i s that a sovereign state may not claim immunity from the j u r i s d i c t i o n of .ar b i t r a t o r s s i t t i n g i n Sweden." 2 6 •". v . '• • Even though the doctrine of sovereign immunity has no app l i c a t i o n before a r b i t r a t o r s , i t i s sometimes contended by state p a r t i e s that t h e i r consent to a r b i t r a t i o n should be construed r e s t r i c t i v e l y because i t constitutes a l i m i t a t i o n on the state's sovereignty. The a r b i t r a l t r i b u n a l i n Amco Asia et a l v. The Republic of Indonesia 2 7, was faced with t h i s argument. The t r i b u n a l held that an agreement to arbitrates " . . . i s not to be construed r e s t r i c t i v e l y , nor as a matter of fa c t , broadly or l i b e r a l l y . I t i s to be construed i n a way which leads to f i n d out and to respect the common w i l l of the p a r t i e s : such a method of in t e r p r e t a t i o n i s but the a p p l i c a t i o n of the fundamental p r i n c i p l e pacta sunt servanda, a p r i n c i p l e common, indeed, to a l l systems of i n t e r n a l law and to inte r n a t i o n a l l a w . l | 2 & 28 FOOTNOTES 1 McClendon and Goodman, International Commercial A r b i t r a t i o n i n New York. 3 (1986). 2 . • . . . See Fox, "Sovereign Immunity and A r b i t r a t i o n " i n Contemporary Problems i n International A r b i t r a t i o n 323 (1986) . Redfern and Hunter, International Commercial A r b i t r a t i o n 4 (1986) . 4 I d - - :. ' • ' 5 See, f o r instance, S. 2 of the U.K. State Immunity Act. 6 22 I.L.M. 752 (1983). Although the court of cassation of France set aside the award (see 26 I.L.M. 1004), that decision does not a f f e c t the point being i l l u s t r a t e d . Id. at 762. I t should, however, be r e i t e r a t e d that, as noted i n the body of the essay, the issue of sovereign immunity does not a r i s e at a l l i n proceedings before a r b i t r a t o r s . That doctrine only has relevance within municipal l e g a l systems. 8 9 10 1 Yearbook Comm. Arb. 133 (1976). Id. at 134. Id. 1 1 Id. 1 2 Id. at 135. 1 3 supra, note 6. 1 4 Id. at 772. 1 5 V Yearbook Comm. Arb.. 179 (1980). 1 6 Id. at 185. 1 7 supra, note 15. T ft supra, note 8. 1 9 see V i t a Foods Inc. v. Unus Shipping Co. Ltd. [1939] A.C. 277; Amin Rasheed Shipping Corpn. v. Kuwait Insurance Co. [1984] A.C. 50. For a discussion of the t o p i c , see Mann 3 I.L.O. 60 (1950), r e p l i e d to by Morris 3 I.L.O. 197 (1950) . 29 2 0 VI Yearbook Comm. Arb. 89 (1981). The U.S. court refused to enforce the award based on the act of state doctrine. The jurisprudence of the award r e l a t i n g to j u r i s d i c t i o n a l immunity was not dis c r e d i t e d i n the judgment. See 482 F. Supp. 1175 (1980). 2 1 Id. at 96. 2 2 Id. at 92. 2 3 Id. 2 4 see Charron v. Montreal Trust Co. [1958] 15 D.L.R. (2d) 240; Bodlev Head Ltd. v. Flegon [1972] 1 W.L.R. 680. 2 5 Montreal Trust Co. v. Stanrock Uranium Mines Ltd. [1966] 1 O.R. 258. 2 6 A r b i t r a t i o n i n Sweden. 14 (1984). 2 7 23 I.L.M. 351 (1984). ' 2 8 Id. CHAPTER THREE ARBITRATION CLAUSES AND JURISDICTIONAL IMMUNITY OF STATES BEFORE MUNICIPAL COURTS. INTRODUCTION A r b i t r a t i o n i s conducted within the framework created or adopted by the p a r t i e s . The proceedings are conducted outside the municipal l e g a l system. One of the advantages of a r b i t r a t i o n i s the opportunity i t affords the inte r n a t i o n a l business community to resolve i t s disputes without substantial interference by municipal courts. Be that as i t may, an a r b i t r a t i o n proceeding cannot be e n t i r e l y conducted without any contact with one municipal l e g a l system or the other. To i l l u s t r a t e , the p a r t i e s may have to seek the assistance of' a municipal court i n appointing a r b i t r a t o r s or i n connection with the recognition and enforcement of the award. A r b i t r a t i o n can only be e f f e c t i v e i f i t receives support and assistance from municipal l e g a l systems: " A r b i t r a l t r i b u n a l s have no sovereign powers equivalent to those of the states with which to enforce t h e i r awards; nor do they always have adequate powers to ensure the proper and e f f i c i e n t conduct of a r b i t r a t i o n proceedings. For t h i s reason, i t has long been recognized that the effectiveness of the a r b i t r a l process i s dependent upon a defined r e l a t i o n s h i p , often described as a •partnership 1, between a r b i t r a t i o n and the courts"- 1 31 A r t i c l e s 5 and 6 of the UNCITRAL Model Law - on International Commercial A r b i t r a t i o n 2 are innovative general provisions on the fundamental subject of court assistance and supervision. A r t i c l e 6 c a l l s upon each state adopting the Model Law to entrust a p a r t i c u l a r "court" with the performance of c e r t a i n functions of a r b i t r a t i o n assistance and supervision, r e l a t i n g to appointment of a r b i t r a t o r s ( a r t i c l e 11), decision i n termination of a r b i t r a t o r ' s mandate ( a r t i c l e s 13,14), control of a r b i t r a l t r i b u n a l ' s j u r i s d i c t i o n ( a r t i c l e 16) and s e t t i n g aside of award ( a r t i c l e 34). With regards to a r b i t r a t i o n between states and private p a r t i e s , when some of the above matters come before municipal courts, the state party may seek to r e l y on immunity from j u d i c i a l proceedings before municipal courts. A pertinent question then i s whether an a r b i t r a t i o n clause should be construed as a waiver of j u r i s d i c t i o n a l immunity before municipal courts. This part of the thesis s h a l l analyze the provisions of some national laws and in t e r n a t i o n a l conventions on the issue. 1. UNITED STATES. (A) HISTORICAL OVERVIEW The U.S. Foreign Sovereign Immunities Act of 1976 (FSIA) 3, d i d not s p e c i f i c a l l y address the issue of a r b i t r a t i o n clauses as waiver of j u r i s d i c t i o n a l immunity. Section 1604 l a i d down the general r u l e that foreign states were immune 32 _ from the j u r i s d i c t i o n of U.S. courts. Exceptions to the general r u l e were provided by Sections 1605-1607. According to Section 1605(a)(1): "(a) A ^ f o r e i g n state s h a l l not be immune from the j u r i s d i c t i o n of courts of the United States or of the States i n any case-(1) i n which the foreign state has waived i t s immunity e i t h e r ' e x p l i c i t l y or by implication, notwithstanding any withdrawal of the waiver which the foreign state may purport to e f f e c t except i n accordance with the terms of the waiver." The p r o v i s i o n d i d not c l a r i f y the issue whether consent to a r b i t r a t i o n constituted an i m p l i c i t waiver within the meaning of the section. An i n s i g h t into the i n t e r p r e t a t i o n of the p r o v i s i o n was afforded by t h e ^ l e g i s l a t i v e h i s t o r y regarding i m p l i c i t waivers of j u r i s d i c t i o n a l immunity: "With respect to i m p l i c i t waivers, the courts have found such waivers i n cases where a foreign state has agreed to a r b i t r a t i o n i n another country or where a foreign state has agreed that the law of a p a r t i c u l a r country should govern the c o n t r a c t . " 4 The implications of the phrase "another country" was not free from doubt. There was considerable divergence of opinion whether by r e f e r r i n g to "another country", the authors of the l e g i s l a t i v e h i s t o r y had i n mind the U.S., or considered that so long as the seat of a r b i t r a t i o n was outside the t e r r i t o r y of the state involved, submission to a r b i t r a t i o n constituted an i m p l i c i t waiver of immunity. 5 A l i t e r a l i n t e r p r e t a t i o n of the passage would suggest that there i s a waiver of immunity from j u r i s d i c t i o n of the U.S. courts i f a foreign state has agreed to a r b i t r a t e i n "another country" anywhere i n the world. The l e g i s l a t i v e h i s t o r y does not indicate the need for any j u r i s d i c t i o n a l nexus between the a r b i t r a t i o n and the U.S. 33 Such l i t e r a l i n t e r p r e t a t i o n of the passage was inconsistent with the p o s i t i o n of the law before the enactment of the FSIA. A review of the pre-FSIA case law reveals that an a r b i t r a t i o n clause must d i r e c t l y or i n d i r e c t l y connect the U.S. before i t could constitute a waiver of j u r i s d i c t i o n a l immunity. In V i c t o r y Transport. Inc. v. Cosisaria General de Abastecimientos 6. the court denied the appellant's plea of sovereign immunity because i t s acts were jure imperii. The court then went on to state that by consenting to a r b i t r a t i o n i n the U.S., the appellant had consented to i n personam j u r i s d i c t i o n : "We hold that the d i s t r i c t court had i n personam j u r i s d i c t i o n to enter the order compelling a r b i t r a t i o n . By agreeing to arbitrate i n New York, where the United States A r b i t r a t i o n Act makes such agreements s p e c i f i c a l l y enforceable, the Comisaria General must be deemed to have consented to the j u r i s d i c t i o n of the court that could compel the a r b i t r a t i o n proceeding i n New York." 7 (emphasis supplied) The court i n Petrol Shipping Corp. v. The Kingdom of Greece 8 was of the opinion that i f a party agrees to a r b i t r a t e i n a c e r t a i n state, he makes himself as amenable to s u i t as i f he were p h y s i c a l l y present there. In cases where the a r b i t r a t i o n agreement did not specify a seat f o r the a r b i t r a t i o n , but provided the mechanism for i t s s e l e c t i o n , the forum selected was regarded as the choice of the p a r t i e s : "The contract between the p a r t i e s , "smile providing f o r a r b i t r a t i o n , does not f i x the place thereof. The rules of the American A r b i t r a t i o n Association are by reference made a part of the contract. Under these rules the association has the power to f i x the place 34_ of a r b i t r a t i o n . I t can thus be said that the p a r t i e s contracted to f i x the place of a r b i t r a t i o n i n New York. 1 1 The preceding cases i l l u s t r a t e the f a c t that under the pre-FSIA case law consent to i n personam j u r i s d i c t i o n i n the U.S. only presumed i n cases ___where p a r t i e s consent to a r b i t r a t i o n i n the U.S. I t was therefore wrong to read the l e g i s l a t i v e h i s t o r y as implying that consent to a r b i t r a t i o n i n any country amounted to waiver of j u r i s d i c t i o n a l immunity i n the U.S. The l e g i s l a t i v e h i s t o r y should be interpreted i n the l i g h t of pre-FSIA case law. In the words of Bruno Ristau: " I t should also be stressed that the long-arm feature of the b i l l w i l l ensure that only those disputes which' have r e l a t i o n to the United States are l i t i g a t e d i n the courts of the United States, and that our courts are not turned into small " i n t e r n a t i o n a l courts of claims". The b i l l i s not designed to open up our courts to a l l comers to l i t i g a t e any dispute that any private party may have with a foreign state anywhere i n the w o r l d . " 1 0 The only case that placed a l i t e r a l i n t e r p r e t a t i o n on the l e g i s l a t i v e h i s t o r y was Ipitrade International. S. S. v. Federal Republic of N i g e r i a . 1 1 The contract between \ Ipitrade and Nigeria included a Swiss choice of law clause and an agreement to a r b i t r a t e disputes under the auspices of the International Chamber of Commerce i n Paris. When a dispute arose, Ipitrade invoked the a r b i t r a t i o n agreement and proceedings took place i n France, Nigeria refusing to p a r t i c i p a t e on the ground of sovereign immunity. Ipitrade then sought to enforce the award i n the U.S. The court held that Nigeria had waived i t s j u r i s d i c t i o n a l immunity within the meaning of S. 1605(a)(1) of the FSIA by agreeing to a r b i t r a t e under the ICC r u l e s . The court r e l i e d e n t i r e l y on the l i t e r a l 35 meaning of the l e g i s l a t i v e h i s t o r y of the section. 2 A r e s t r i c t i v e i n t e r p r e t a t i o n of S. 1605(a)(1) was offered i n Verlinden v. Central Bank on N i g e r i a ' 1 3 There the court stated, obiter, that an agreement by a foreign state to a r b i t r a t e with another non-American privat e party i n a t r i b u n a l seating i n another country does not constitute an i m p l i c i t waiver of i t s sovereign immunity i n the U.S. I t disagreed with the i n t e r p r e t a t i o n given to the FSIA's l e g i s l a t i v e h i s t o r y i n Ipitrade: " I t may be reasonable to suggest that a sovereign state which agrees to be governed by the laws of the United States - which i n both "another country" and "a p a r t i c u l a r country" - has i m p l i c i t l y waived i t s a b i l i t y to assert the defense of sovereign immunity when sued i n an American court. But i t i s quite another matter to suggest, as d i d the court i n Ipitrade. that a sovereign state which agrees to be governed by the laws of a third-party country -such as the Netherlands - i s thereby precluded from asserting i t s immunity i n an American c o u r t . " 1 4 The court further stated that the approach adopted i n Ipitrade w i l l expose the courts to "matters involving s e n s i t i v e foreign r e l a t i o n s " by throwing open the doors of the court to claimants i r r e s p e c t i v e of the connection between the s u i t and the U.S. In Chicago Bridge & Iron CO. v. Islamic Republic of I r a n 1 5 , the court rejected some a r b i t r a t i o n clauses as the basis of. j u r i s d i c t i o n because they d i d not contain e i t h e r a U.S. choice of law or a U.S. choice of forum provision: "We agree with Judge Weinfeld 1s precise holding i n Verlinden v. Central Bank of Nigeria that the presence of third-party nation choice of law and forum clauses does not i n any sense i m p l i c i t l y consent to United States j u r i s d i c t i o n . " 36 Libyan American O i l Co. v. S o c i a l i s t People's Libyan Jamahirva 1 7.provides a d i f f e r e n t dimension to the issue. I t addressed the question of waiver where the a r b i t r a t i o n agreement does not provide a seat f o r the a r b i t r a t i o n , but the a r b i t r a t i o n a c t u a l l y takes place i n a country outside the U . S o The a r b i t r a t i o n agreement i n the instant case d i d not specify the seat of a r b i t r a t i o n . When a dispute arose under the underlying contract, LIAMCO invoked the a r b i t r a t i o n clause and a sole a r b i t r a t o r was appointed. The a r b i t r a t o r selected Geneva as the seat of a r b i t r a t i o n . In an action to enforce the a r b i t r a t o r ' s award, the court held, i n t e r a l i a , that Libya waived i t s sovereign immunity by agreeing to submit to a r b i t r a t i o n . The court centered on the f a c t that because the seat of a r b i t r a t i o n was l e f t open i n the a r b i t r a t i o n agreement, the pa r t i e s anticipated that proceedings could have occurred i n the U.S. "Although the United States was not named, consent to have a dispute a r b i t r a t e d where the a r b i t r a t o r s might determine was c e r t a i n l y consent to have i t ar b i t r a t e d i n the United S t a t e s . " 1 8 This decision i s d i f f i c u l t to reconcile with the p r e - F S I A case law. By holding that agreement to a r b i t r a t e i n the U . S o constitutes waiver of immunity i n that j u r i s d i c t i o n , i t accords both with pre-FSIA case law and the preponderance o f post-FSIA decisions. The holding that there i s submission to j u r i s d i c t i o n where the part i e s consent to a r b i t r a t e where the a r b i t r a t o r s determine, and the l a t t e r chooses a seat outside the U.S. i s , however, against the current of j u d i c i a l authority. The court d i d not consider the e x i s t i n g case law which indicates that an a r b i t r a t i o n clause which leaves the 3 7 designation of the l o c a l e of a r b i t r a t i o n to a t h i r d party i s tantamount to a clause providing f o r a r b i t r a t i o n i n the locale a c t u a l l y designated by the t h i r d p a r t y . 1 9 I t seems reasonable to assume that by leaving the designation of the seat of a r b i t r a t i o n to the a r b i t r a t o r s , the disputing p a r t i e s only contemplate proceedings i n the s i t u s a c t u a l l y chosen by the a r b i t r a t o r s and, probably, i n t h e i r own places of residence. The f a c t that the p a r t i e s mandate the a r b i t r a t o r s to determine the seat of a r b i t r a t i o n does not make countries outside the s i t u s any more j u s t i f i e d to assume j u r i s d i c t i o n i n matters r e l a t i n g to the a r b i t r a t i o n than i n cases where the parties themselves selected the seat of a r b i t r a t i o n . The above survey underscores the c o n f l i c t i n g i n t e r p r e t a t i o n given to the l e g i s l a t i v e h i s t o r y of S. 1605. The expansive i n t e r p r e t a t i o n offered i n the Ipitrade case does not require any j u r i s d i c t i o n a l nexus between the U.S. and e i t h e r the seat of a r b i t r a t i o n or the underlying commercial transaction. Acceptance of that viewpoint may lead• to f a r -reaching consequences i n cases where the dispute has no connection with the U.S. However, such an i n t e r p r e t a t i o n may be j u s t i f i e d at l e a s t i n cases where the U.S. has a treaty o b l i g a t i o n to recognize such an award. 2 0 S t r i c t adherence to the i n t e r p r e t a t i o n rendered i n Verlinden and i t s progeny involves the breach of U.S. obligations to recognize and enforce foreign awards which come within the purview of the New York Convention. 38 (B) AMENDMENTS TO THE U.S. FSIA In May 1985 Senator Charles Mathias introduced l e g i s l a t i o n i n the U.S. Congress to c l a r i f y and strengthen the FSIA. The amendments were to perfect the j u r i s d i c t i o n of the court and provide f o r better enforcement and execution of judgments once they are rendered by the c o u r t . 2 1 The amendments were adopted i n November 1988. 2 2 .Paragraph (6) was added to S. 1605. I t provides: "(a) A foreign state s h a l l not be immune from j u r i s d i c t i o n of courts of the United States or of the States i n any case -(6) i n which the action i s brought, e i t h e r to enforce an agreement made by the foreign state with or f o r the benefit of a private party to submit to a r b i t r a t i o n a l l or any differences which have arisen or which may a r i s e between the pa r t i e s with respect to a defined l e g a l r e l a t i o n s h i p , whether contractual or not, concerning a subject matter capable of settlement by a r b i t r a t i o n under the laws of the United States, or to confirm an award made pursuant to such an agreement to a r b i t r a t e , i f (a) the a r b i t r a t i o n takes place or i s intended to take place i n the United States (b) the agreement or award i s or may be governed by a treaty or other i n t e r n a t i o n a l agreement i n force fo r the United States c a l l i n g f o r the recognition and enforcement of a r b i t r a l awards (c) the underlying claim, save f o r the agreement to ar b i t r a t e , could have been brought i n an United States court under, t h i s section or section 1607; or (d) paragraph (1) of t h i s subsection i s otherwise applicable" Clause (a) i s consistent with the Verlinden l i n e of cases i n that i t requires a r b i t r a t i o n i n the U.S. or inten t i o n to do so before a U.S. court can assume personal j u r i s d i c t i o n i n matters r e l a t i n g to an a r b i t r a t i o n . I t i s not c l e a r what the 3 9 p o s i t i o n may be i n cases where although the p a r t i e s intended to a r b i t r a t e i n the U.S., the a r b i t r a t i o n a c t u a l l y takes place i n another country. C l e a r l y i f the country i n which the a r b i t r a t i o n takes place i s a signatory to the New York Convention or a party to any other agreement i n force f o r the U.S. c a l l i n g f o r the recognition and enforcement of a r b i t r a l awards, the U.S. courts may assume j u r i s d i c t i o n under Clause (b) . But where the agreement or award i s outside the purview of Clause (b) , i t would seem that mere intention to a r b i t r a t e i n the U.S. would not s u f f i c e i f i n f a c t the a r b i t r a t i o n does not take place i n the U.S. Reference to intention to a r b i t r a t e i n Clause (a) appears to be designed f o r cases where personal j u r i s d i c t i o n i s sought i n U.S. courts before an a r b i t r a l t r i b u n a l i s constituted. An example would be where a party seeks to compel a r b i t r a t i o n under the agreement. In such a case U.S. courts may assume personal j u r i s d i c t i o n i f the a r b i t r a t i o n agreement r e f l e c t s an intention to conduct the a r b i t r a t i o n proceedings i n the U.S. Refusal to assume personal j u r i s d i c t i o n except i n cases where the a r b i t r a t i o n a c t u a l l y takes place i n the U.S. (a proposition suggested by the Verlinden case) may be inconsistent with U.S. o b l i g a t i o n under international conventions which require i t to recognize and enforce c e r t a i n kinds of foreign a r b i t r a l awards. Clause (b) ensures that U.S., courts w i l l recognize an award governed by an in t e r n a t i o n a l convention i n force i n the U.S., i r r e s p e c t i v e of where the a r b i t r a t i o n took place. Treaties and i n t e r n a t i o n a l agreements contemplated by the section include, i n t e r a l i a , the New York 40 Convention and the Convention on the Settlement of Investment Disputes between States and Nationals of Other S t a t e s 2 3 . Clauses (c) and (d) make cl e a r that an action to enforce an a r b i t r a t i o n agreement or to confirm an award may also be brought i f the underlying claim could have been brought i n the U.S., thereby ensuring that a s u f f i c i e n t connection with the U.S. e x i s t s and that immunity may also be denied i f the waiver exception i s found to be otherwise a p p l i c a b l e . 2 4 Thus j u r i s d i c t i o n over the underlying c o n f l i c t would ensure j u r i s d i c t i o n over enforcement of any a r b i t r a l agreement between the p a r t i e s r e l a t i n g to the dispute, or confirmation of any resultant award. The amendments have streamlined the U.S. law regarding a r b i t r a t i o n agreements and assumption of personal j u r i s d i c t i o n i n U.S. courts. I t i s only i n cases where the a r b i t r a t i o n agreement or award f a l l s within Clauses (a) to (d) that personal j u r i s d i c t i o n could be assumed i n a proceeding involving a state party. 2 . THE UNITED KINGDOM. S. 1(1) of the U.K. State Immunity A c t 2 5 lays down the general r u l e that a state i s immune from the j u r i s d i c t i o n of the courts of the United Kingdom except as provided i n the statute. S. 9 s p e c i f i c a l l y addresses the issue of consent to a r b i t r a t i o n as waiver of j u r i s d i c t i o n a l immunity. I t reads: 41 "(1) Where a State has agreed i n wri t i n g to submit a dispute which has arisen, or may a r i s e , to a r b i t r a t i o n , the State i s not immune as respects proceedings i n the courts of the United Kingdom which r e l a t e s to the a r b i t r a t i o n . — (2) This section has e f f e c t subject to any contrary pro v i s i o n i n the a r b i t r a t i o n agreement and does not apply to any a r b i t r a t i o n agreement between S t a t e s . " 2 6 , "~ The language of the section does not seem to require any j u r i s d i c t i o n a l nexus with U.K. The section, l i t e r a r i l y read, suggests that waiver exists even where the a r b i t r a t i o n takes place outside the U.K. As one writer has suggested that: "Before immunity or i t s absence f a l l s to be considered, an English court must have [ t e r r i t o r i a l ] j u r i s d i c t i o n and t h i s w i l l frequently be a serious hurdle f o r the p l a i n t i f f . " 2 7 The preponderance of j u r i d i c a l opinion i s that the section should be interpreted as removing immunity only i n respect of agreements to a r b i t r a t e i n the U.K. 2 8 This would appear to follow from the l e g i s l a t i v e h i s t o r y of the Act which states that where the dispute has no connection to the U.K., "the courts w i l l normally not entertain proceedings x and the question of claiming immunity w i l l not a r i s e " . 2 9 Such an in t e r p r e t a t i o n would, however, render the U.K. i n contravention of i t s o b l i g a t i o n under both the New York and the Washington Conventions. 3 0 3. CANADA. S.3 of the Canadian State Immunity Act, 1982, 3 1 states the general r u l e that foreign states are immune from the j u r i s d i c t i o n of Canadian courts. Sections 4 - 8 provide for 42 exceptions to the r u l e . Unlike the B r i t i s h Act, no reference i s made to consent to a r b i t r a t i o n as waiver of immunity. Section 4 provides f o r waiver of immunity. The three si t u a t i o n s envisaged by t h i s waiver provision are (1) express submission to j u r i s d i c t i o n by written agreement or otherwise, (2) i n i t i a t i o n of proceedings, and (3) intervention or taking any step i n proceedings before the court. The section does not contemplate i m p l i c i t waiver by consent to a r b i t r a t i o n . In Canada, therefore, i t i s not c l e a r whether a r b i t r a t i o n clauses constitute waiver of immunity. However, because most a r b i t r a t i o n s r e l a t e to disputes a r i s i n g from commercial a c t i v i t y 3 2 , an a r b i t r a t i o n clause may q u a l i f y as a waiver under the commercial a c t i v i t y exception (S.5). There i s , to the writer's knowledge, at present no Canadian j u d i c i a l decision on the e f f e c t of a r b i t r a t i o n clauses on sovereign immunity. 4. INTERNATIONAL CONVENTIONS. (A) INTERNATIONAL LAW COMMISSION DRAFT ARTICLES ON JURISDICTIONAL IMMUNITIES OF STATES AND THEIR PROPERTY.— The I.L.C. at i t s 1986 session completed and a d o p t e d d r a f t a r t i c l e s on j u r i s d i c t i o n a l immunities of states and t h e i r property. The a r t i c l e s deal with the general p r i n c i p l e s of j u r i s d i c t i o n a l immunity and i t s l i m i t a t i o n s , and the immunity of state property from measures of constraint <> 43 Under A r t i c l e 19, the j u r i s d i c t i o n a l immunity of states i s i napplicable to ar b i t r a t i o n s concerning c i v i l or commercial disputes, and only i n r e l a t i o n to proceedings i n municipal courts which i s otherwise competent to hear the case. I t reads: " I f a state enters into an agreement i n writ i n g with a foreign natural or j u r i d i c a l person to submit to a r b i t r a t i o n differences r e l a t i n g to a [commercial contract] [ c i v i l or commercial matter], that state cannot invoke immunity from j u r i s d i c t i o n before a court of another state which i s otherwise competent i n a proceedings which re l a t e s to: (a) the v a l i d i t y or in t e r p r e t a t i o n of the a r b i t r a t i o n agreement, (b) the a r b i t r a t i o n procedure, (c) the s e t t i n g aside of the award, unless the a r b i t r a t i o n agreement otherwise provides" (Emphasis supplied.) The a r t i c l e s therefore require a j u r i s d i c t i o n a l nexus between a forum and an a r b i t r a t i o n before an ar b i t r a t i o n clause can constitute waiver of j u r i s d i c t i o n a l immunity. \ (B) THE EUROPEAN IMMUNITY CONVENTION. Under the European Convention on State Immunity, an a r b i t r a t i o n clause can only constitute waiver of immunity i n the country where the a r b i t r a t i o n takes place. However, unlike the I.L.C. d r a f t a r t i c l e s , a choice-of-law law clause suffices to e s t a b l i s h a waiver of immunity. The relevant provision i s A r t i c l e 12: 44 "1. Where a contracting State has agreed i n w r i t i n g to submit to a r b i t r a t i o n a dispute which has arisen or may a r i s e out of a c i v i l or commercial matter, that State may not claim immunity from the j u r i s d i c t i o n of a court of another contracting State i n the t e r r i t o r y or according to the law of which the a r b i t r a t i o n has taken or w i l l take place, i n respect of any proceedings r e l a t i n g to: (a) the v a l i d i t y or i n t e r p r e t a t i o n of the a r b i t r a t i o n agreement; (b) the a r b i t r a t i o n procedure: (c) the s e t t i n g aside of the award, unless the a r b i t r a t i o n agreement otherwise provides." CONCLUSION. The preponderance of state practice, as the above survey indicates, would seem to support the view that a r b i t r a t i o n clauses constitute a waiver of j u r i s d i c t i o n a l immunity before municipal courts. This p o s i t i o n accords with l o g i c and common sense. A state that consents to a r b i t r a t i o n must have anticipated that where necessary court assistance would be sought to ensure the e f f i c a c y of the a r b i t r a l process. An i n t e r e s t i n g issue i n t h i s respect i s whether there should be a requirement of j u r i s d i c t i o n a l nexus between the a r b i t r a t i o n and the forum whose municipal court i s being resorted to. This would c u r t a i l any tendency f o r the parties to engage i n j u r i s d i c t i o n jockeying. As we have seen, before the amendments to the U.S. FSIA, there were c o n f l i c t i n g j u d i c i a l decisions as to whether t h i s requirement was b u i l t into the statute. The amendments c l a r i f y the p o s i t i o n by s e t t i n g out the situations where U.S. courts may assume j u r i s d i c t i o n . I t seems c l e a r that where the a r b i t r a t i o n agreement or award i s governed by eith e r the New York or Washington convention, municipal courts i n countries that are signatories to the conventions should be guided by t h e i r provisions. The Washington convention prevents municipal courts from intervening, i n an ICSID proceeding, at l e a s t u n t i l the recognition and enforcement s t a g e . 3 4 Under both the New York and the Washington conventions, state signatories are obligated to recognize and enforce awards that meet the requirements of the respective conventions, i r r e s p e c t i v e of the country where they were obtained. A party to e i t h e r of the conventions would be breaching i t s trea t y obligations by : requiring j u r i s d i c t i o n a l l i n k s between the a r b i t r a t i o n and i t s country before i t can enforce such awards. 46 FOOTNOTES 1 Redfern and Hunter, International Commercial A r b i t r a t i o n (1986), 231. 2 Adopted by the United Nations Commission on International Trade Law on June 21, 1985. 3 28 U.S.C. S.1330; S.1602 et seq. 4 H.R.Rep. No. 1487, 94th Cond., 2d Sess. at 18. 5 Delaume, "Foreign Sovereign Immunity: Impact on A r b i t r a t i o n " 38 Arb. J . 34, 36 (1983). 6 336 F. 2d 354 (1964). 7 Id at 363. : 8 360 F 2D 103 (1966) . . •' . 9 Bradford Woolen Corp. v. Freedman 71 N.Y.S. 2d 257,259 (1947) . The court found that there was consent to i n personam j u r i s d i c t i o n i n New York because the American A r b i t r a t i o n Association chose New York as the seat of a • 10 94th . Cong., 2d Sess. 31, 31 11 465 F. Supp. 824 (1978). 12 Id. at 826. 13 488 F. Supp. 1284 (1980). 14 Id. at 1301. 15 506 F « Supp. 981 (1980). 16 Id. at 987. 17 482 F. Supp. 1175 (1980). 18 Id. at 1178. 19 See Kahale, " A r b i t r a t i o n & Pol. 29, 54 (1981). See also the decision i n Bradford Woolen Corp. v. Freedman 71 N.Y.S. 2d 257 (1947). An example w i l l be under the Convention on the Recognition and Enforcement of . Foreign A r b i t r a l Award 21 U.S.T. S.2517; 330 U.N.T.S. S.3 signed at New York on June 10, 1958. (Hereinafter c a l l e d the New York Convention) 47 21 22 23 S. 1071, 99th Cong., 1st Sess., 131" Cong. Rec. S. 5370. See Feldman, "Waiver of Foreign Sovereign Immunity by Agreement to A r b i t r a t e : L e g i s l a t i o n Proposed by the American Bar Association" 40 Arb. J . 24; Rothstein, "Recognition and Enforcing A r b i t r a l Agreements and Awards against Foreign States: The Mathias Amendments to the Foreign Sovereign Immunities Act and T i t l e 9" 1 Emory J . I n t ' l Dispute Reso. 101 (1986). See 102 Stat. 3969. 17 U.S.T. S.1270; 575 U.N.T.S. S.159 signed at Washington, D.C., March 18, 1965. Kahale, "New L e g i s l a t i o n i n the United States F a c i l i t a t e s Enforcement of A r b i t r a l Agreements and Awards Against Foreign States" 6 J . I n t ' l Arb. Vol. 2. 57, 62 (1989). 2 5 1978, Ch. 33. 2 6 For s i m i l a r provisions i n national laws, see S. 10 Pakistan State Immunity Ordinance, 1981; S. 10 South African Foreign States Immunities Act, 1981; S. 11 Singapore Sovereign Immunity Act, 1979. " 2 7 Mann, "The State Immunity Act 1976" 50 B r i t . Y. I n t ' l . L. 43 (1979). 2 8 Fox, "States and Undertaking to A r b i t r a t e " 37 I.C.L.O. i (1988); Triggs, "An International Convention on Sovereign Immunity: Some problems i n Application of the R e s t r i c t i v e Rule" 9 Monash U.L.R. 75 (1982). For a d i f f e r e n t view, see Delaume, "The State Immunity Act of the U.K." 73 Am. J . I n t ' l . L. 185. * - i 2 9 949 P a r i . Deb. 409. See the discussion above with regard to the amended U.S. FSIA. 3 1 For a discussion of the statute, see Molot and Jewett, "The State Immunity Act of Canada" 20 Canadian Y. I n t ' l L. 79 (1982). 3 2 S. 2 of the Canadian State Immunity Act defines commercial a c t i v i t y as any p a r t i c u l a r transaction, act or conduct or any regular course of conduct that by reason of i t s nature i s of a commercial character. 3 3 26 I.L.M. 625 (1987). 3 4 See A r t i c l e 26 of the convention. The a r t i c l e i s discussed i n greater d e t a i l i n Section Two, Chapter three. 48 SECTION TWO CHAPTER ONE STATE IMMUNITY FROM EXECUTION The term j u r i s d i c t i o n as i t concerns states can be used i n two ways. F i r s t , i t re f e r s to the competence of a court to determine a s u i t i n a proceedings where a state i s sued eo nomine. Again, i t contemplates si t u a t i o n s where measures are taken or proceedings i n s t i t u t e d i n respect of state property. Legal proceedings may, therefore, be directed e i t h e r at the state i t s e l f or i t may e n t a i l measures of arrest, attachment or execution against i t s property. \ The conventional doctrine of sovereign immunity, as we have seen, grants absolute immunity from s u i t s to states. Under t h i s doctrine, a state could not be sued except with i t s consent. As a concomitant of t h i s r u l e , the courts accorded absolute immunity from execution to states. I t was considered inconsistent with the comity of nations and the smooth conduct of governmental a f f a i r s to issue execution on the property of a state. In Porto Alexander 1 the court restated the law: "A sovereign state cannot be impleaded d i r e c t l y or by being served i n person, or i n d i r e c t l y by proceeding against i t s property, and that i n 4 9 applying that p r i n c i p l e i t matters not how the property was being employed." 2 The issue i n The Parlement Beige 3 was whether a vessel belonging to Belgium and used by that government i n carrying mail and i n transporting passengers and f r e i g h t f o r h i r e could be the subject of l i t i g a t i o n i n the Admiralty "Court i n Great B r i t a i n . A f t e r reviewing many cases bearing on the question, the court said: "The p r i n c i p l e to be deduced from these cases i s that, as a consequence of the absolute independence of every sovereign authority, and of the int e r n a t i o n a l comity which induces every other state, each and every one declines to exercise by means of i t s courts any of i t s t e r r i t o r i a l j u r i s d i c t i o n over the person of any sovereign or ambassador of any other state, or over the property of any ambassador. though •-•-such sovereign, ambassador, or property be within i t s j u r i s d i c t i o n , and therefore, but. f o r the common agreement, subject to i t s j u r i s d i c t i o n . " 4 (emphasis supplied) The twin aspects of state immunity was well i l l u s t r a t e d by Lord Atkin i n Compania Naviera Vascongado v. S.S. C r i s t i n a 5 In an often c i t e d dictum, he referred to: "...two propositions of international law engrafted into our domestic law which seems to me to be well established and to be beyond dispute. The f i r s t i s that the courts of a country w i l l not implead a foreign sovereign, that i s , they w i l l not by t h e i r process make him against h i s w i l l a party to l e g a l proceedings whether the proceedings involve process against h i s person or seek to recover from him s p e c i f i c property or damages. The second i s that they w i l l not by t h e i r process, whether the sovereign i s a party to the proceedings or not, seize or detain property which i s h i s or of which he i s i n possession or contro l . There has been some differe n c e i n the pra c t i c e of nations as to possible l i m i t a t i o n of t h i s second p r i n c i p l e as to whether i t extends to property only used f o r the commercial purposes of the sovereign or to personal private property. In t h i s country i t i s i n my opinion well s e t t l e d that i t applies to both." 6 50 Contemporary int e r n a t i o n a l law theory repudiates the doctrine of absolute immunity of states from s u i t . With the entrance of states into trading and other commercial a c t i v i t i e s , i t was thought unreasonable to grant them immunity from the everyday consequences of commercial transactions. There i s now a general acceptance that the doctrine of sovereign immunity from s u i t does not extend to the trading a c t i v i t i e s of sovereign s t a t e s . 7 This p r i n c i p l e i s accepted i n many c o u n t r i e s . 8 As we have seen 9, under the r e s t r i c t i v e theory of immunity, the immunity of foreign states from s u i t i s r e s t r i c t e d to s u i t s involving t h e i r p u b l i c acts (jure Imperii) and does not extend to s u i t s based on i t s commercial or priva t e acts (jure g e s t i o n i s ) . As we s h a l l see, t h i s r e s t r i c t i o n on state immunity from s u i t to only the public acts of states does not e n t i r e l y t r a n s l a t e into a removal of immunity from execution i n a l l cases where states engage i n commercial a c t i v i t i e s . This i s due to the d i s t i n c t i o n drawn between immunity from \suit and immunity from execution. DISTINCTION BETWEEN IMMUNITY FROM SUIT AND IMMUNITY FROM EXECUTION Immunity from s u i t r e f e r s to exemption from the j u d i c i a l competence of the court having power to adjudicate or s e t t l e disputes by adjudication. In t h i s sense a state i s immune from court proceedings r e s u l t i n g i n judgment. On the other hand, immunity from execution i s connotative of the immunity of state property from pre-judgment attachment and arrest, and also from execution of the attendant judgment. This d i s t i n c t i o n was acknowledged even i n countries such as I t a l y and Belgium where the r e s t r i c t i v e doctrine of immunity had i t s ancient r o o t s . 1 0 The d i s t i n c t i o n has i t s r a t i o n a l e i n the f a c t that while proceedings against a foreign state leading to judgment i s not a clog on the continued operation of the state, execution on state property may impair the conduct of governmental a c t i v i t i e s . Execution of judgment may also involve the use of force against a state by seizure of i t s assets. Such action, i t i s believed, would engender p o l i t i c a l differences between governments. Also, from an economic point of view, such execution may r e s u l t i n foreign states r e f r a i n i n g from investment i n countries where t h e i r property i s susceptible to execution. Execution i s then seen as a "more intensive interference with the r i g h t s of a s t a t e " . 1 1 In Duff Development v. Kelantan 1 2, the House of Lords held that execution could not be taken out on an a r b i t r a t o r ' s award although by statute that award had the e f f e c t of a judgment. This was i n s p i t e of the f a c t that the Government of Kelantan had i n a previous proceeding submitted to the j u r i s d i c t i o n of the English courts on the merits. In the U.S. case of Dexter & Capenter v. K u n g l i q 1 3 , the C i r c u i t Court of Appeals refused attachment of the property of the Swedish State Railways, regardless of the f a c t that Sweden had previously submitted to j u r i s d i c t i o n : "But consenting to be sued does not give consent to seizure or attachment of the property of a sovereign government" 1 4 52 This p o s i t i o n was recognized by the French court i n Yugoslavia v. SEE 1 5. SEE secured an award against Yugoslavia, obtained an ordonnance d 1 exequatur and seized Yugoslavian assets i n the hands of the world bank i n P a r i s . Yugoslavia argued that the ordonnance d 1 exequatur v i o l a t e d French public p o l i c y by ignoring the former's immunity from execution. The court said: "... i n accepting an a r b i t r a t i o n clause, the Yugoslavian state accepted to , waive i t s immunity with respect to the a r b i t r a t o r s and t h e i r award up to and including the . procedure of exequatur necessary to give the award f u l l force ... waiver of j u r i s d i c t i o n a l immunity i n no way r e s u l t s i n waiver of immunity from execution...the ordonnance d' exequatur... i s not an action of execution... " l c > This p r i n c i p l e was accepted by the"Special Rapporteur to the International Law Commission's committee on the J u r i s d i c t i o n a l Immunities of States and t h e i r P r o p e r t y . 1 7 I t was also recognized by the French Court of Cassation i n Islamic Republic of Iran v. Societe E u r o d i f 1 8 : "On t h i s point both l e g a l l i t e r a t u r e and jurisprudence ... combine i n taking the view that waiver of immunity from j u r i s d i c t i o n does not i n any way imply the waiver of immunity from execution and that the object of an a r b i t r a t i o n clause i s l i m i t e d to entrusting the settlement of the disputes to the a r b i t r a l t r i b u n a l and submitting the p a r t i e s to i t s j u r i s d i c t i o n . " 1 9 The State Immunity Act of Great B r i t a i n also adopted the d i s t i n c t i o n . 2 0 The Act draws a d i s t i n c t i o n between the adjudicative j u r i s d i c t i o n and the enforcement j u r i s d i c t i o n of courts of law i n the United Kingdom. The adjudicative j u r i s d i c t i o n of court i s dealt with i n Sections 2 to 11, while Sections 13(2) to (6) and 14(3) and (4) deal i n p a r t i c u l a r with enforcement j u r i s d i c t i o n . Under the U.S. foreign 53 Sovereign Immunities Act of 1976 2 1, waiver of immunity from j u r i s d i c t i o n i s not conterminous with waiver of immunity from execution. Sections 1330 and 1604-1607 deal with immunity from j u r i s d i c t i o n , while immunity from attachment and execution of property of a foreign state i s dealt with i n Sections 1607-1611. The Canadian State Immunity Act i s modeled on that of the U.K. Like the l a t t e r , the former recognizes the d i s t i n c t i o n between immunity from s u i t and immunity from .execution. Sections 3-8 deal with immunity from j u r i s d i c t i o n while Sections 10-12 deal with immunity from execution. Conventions such as the EuropeanConvention on State Immunity and the Convention on the Settlement of Investment Disputes between States and Nationals of other States (the Washington Convention) acknowledge the f a c t that waiver of immunity from j u r i s d i c t i o n does not eo ipso amount to waiver of immunity execution. While A r t i c l e s 1-14 of the European Convention provide exceptions to the immunity of states from s u i t , A r t i c l e 23 makes i t c l e a r that: "No measures of execution against the property of a contracting state may be taken i n the t e r r i t o r y of another contracting state except where and to the extent that the state has expressly consented thereto i n wr i t i n g i n any p a r t i c u l a r c a s e . " 2 2 A r t i c l e 54 of the Washington Convention prevents a contracting state party to a dispute from r a i s i n g the defense of immunity from j u r i s d i c t i o n at the time of recognition and enforcement of an ICSID award. The a r t i c l e obliges contracting states to recognize an award rendered pursuant to the Convention as binding and to enforce the pecuniary obligations 54 imposed by that award as i f i t were a f i n a l judgment of a court i n that state. A r t i c l e 55, however, stresses that the preclusion of considerations of sovereign immunity at the recognition stage does not extend to immunity from execution. The Convention surrenders measures of execution to domestic rules of immunity obtaining i n contracting states. Within the framework of the Convention, the recognition stage i s considered the ultimate stage of the a r b i t r a t i o n process and a contracting state party i s deemed to waive i t s immunity up to that phase. Because the execution stage i s p o s t e r i o r to the recognition stage, the immunity p r i n c i p l e s applicable i n various contracting states may be r e l i e d on at that stage. In sum, depending on the state concerned, consent to ICSID a r b i t r a t i o n while c o n s t i t u t i n g waiver of immunity from j u r i s d i c t i o n may not amount to waiver of immunity from execution. This p r i n c i p l e i s i l l u s t r a t e d by LETCO v. Government of L i b e r i a 2 3 , where although L i b e r i a was held to have waived i t s immunity from s u i t by consenting po ICSID a r b i t r a t i o n , the court stated that i t s bank accounts were immune from attachment under the F.S.I.A. • -A d i f f e r e n t view has been advocated by the jurisprudence of some c i v i l law j u r i s d i c t i o n s . Swiss law refuses to recognize a dichotomy between immunity from s u i t and immunity from execution. I t maintain^ that the one follows inexorably from the o t h e r . 2 4 In Kingdom of Greece v. J u l i u s B a r 2 5 , the Swiss Federal Tribunal said: "As soon as one admits that i n c e r t a i n cases a foreign state may be a party before Swiss courts to an action designed to determine i t s r i g h t s and 55 obligations under a l e g a l r e l a t i o n s h i p i n which i t had become concerned, one must admit also that that foreign state may i n Switzerland be subjected to measures intended to ensure the forced execution of a judgment against i t . I f that were not so, the judgment would lack i t s most e s s e n t i a l a t t r i b u t e , namely that i t w i l l be executed even against the w i l l of the party against which i t i s rendered ... There i s thus no reason to modify the case law of the Federal Tribunal i n so f a r as i t t r e a t s immunity from j u r i s d i c t i o n and immunity from execution on a s i m i l a r f o o t i n g . " 2 6 This view equally finds support i n Swedish j u d i c i a l p r a c t i c e . In LIAMCO v. L i b y a 2 7 , the Swedish Court of Appeal held that Libya waived i t s r i g h t to invoke immunity from s u i t by accepting an a r b i t r a t i o n clause. In the view of the court, a waiver of immunity from execution i s i m p l i c i t i n a waiver of immunity from j u r i s d i c t i o n . Some l e g a l writers share the view that the d i s t i n c t i o n between immunity from j u r i s d i c t i o n and immunity from execution i s i m p r a c t i c a l . 2 8 They believe that i f a state consents to a r b i t r a t i o n i t must be deemed to have accepted a l l i t s consequences, including compliance with an unfavorable award. In such circumstances, i f a state does not comply with an award, i t s assets should be as susceptible to execution as that of a p r i v a t e person. This r u l e i s s a i d to be an a p p l i c a t i o n of the p r i n c i p l e of pacta sunt servanda. I t should be pointed out that t h i s l a t t e r view, by attempting to equate the l e g a l consequences of the actions of a state with that of private persons, ignores the peculiar nature of state a c t i v i t y . I m p l i c i t i n that view i s the assumption that the p o l i t i c a l and s o c i a l consequences of enforcement of awards are the same i n both cases. I t i s an a n a l y t i c a l error to gloss over the f a c t that unrestricted 56 execution on state property may ultimately grind the machinery of government to a h a l t . This may r e s u l t i n states r e f r a i n i n g from investing i n those countries where i t s assets are e a s i l y subject to execution. ~~ More importantly ,• no state can a f f o r d to have a reputation of neglecting to f u l f i l l i t s i nternational o b l i g a t i o n s . The p o l i t i c a l and economic consequences of such an a t t i t u d e are too great to ignore. Not only w i l l such a state drive away po t e n t i a l investors, i t also stands the r i s k of p o l i t i c a l i s o l a t i o n . There equally e x i s t s diplomatic channels of res o l v i n g disputes a r i s i n g from such f i n a n c i a l r e l a t i o n s . While the writer does not suggest that state property should be t o t a l l y immune from execution, i t i s submitted that only state property u t i l i z e d i n commercial a c t i v i t i e s should be open to execution. I f a state sets out p a r t i c u l a r funds for the conduct of commercial a c t i v i t y , there e x i s t no reasons of p o l i c y why such a fund cannot be attached to s e t t l e obligations a r i s i n g from the states commercial a c t i v i t i e s . But to suggest that a l l _ state property should be open to execution, as some writers d o 2 9 , i s to carry beyond acceptable l i m i t s the analogy between private p a r t i e s and states i n i n t e r n a t i o n a l commerce. Even i n countries such as Sweden and Switzerland where the courts refuse to draw a d i s t i n c t i o n between immunity from s u i t and immunity from execution, i t i s generally accepted . that only funds used f o r commercial a c t i v i t i e s may be a t t a c h e d . 3 0 The r a t i o n a l e f o r t h i s i s that to levy execution on state property not used fo r commercial a c t i v i t y w i l l constitute an intense interference with the conduct of the public a c t i v i t i e s of the state i n question. We s h a l l see i n the following discussion that there i s l i t t l e p r a c t i c a l difference between the state p r a c t i c e i n countries where a d i s t i n c t i o n i s made between ^ immunity from j u r i s d i c t i o n and immunity from execution and those that r e j e c t such a d i s t i n c t i o n . In both cases, once a state waives i t s immunity from s u i t , i t s assets used f o r commercial a c t i v i t y are normally open to execution. . ./ 58 FOOTNOTES 1 [1920] P. 30. 2 Id. at 31. 3 (1880) 5 P.D. 197. 4 Id. at 214. 5 [1938] A.C. 485. 6 Id. at 490. See V i c t o r y Transport Inc. v. Comisaria General de Abasteciementos 25 I.L.R. 110; A l f r e d Dunhill v. Republic of Cuba 15 I.L.M. 735; Ph i l i p p i n e Admiral Case [1976] 2 W.l.R. 214; Trendtex Trading Corp Ltd v. Central Bank of Nigeria [1977] 2 W.L.R. 356. o On I t a l i a n law, see Borga v. Russian Trade Delegation 22 I.L.R. 235 (1955); f o r Egypt, see F.P.R. of Yugoslavia v. Kafr El-Zavat Cotten Ltd 18 I.L.R. 18 (1955); for Netherlands, see Krol v. Bank of Indonesia 26 I.L.R. 180 (1958); f o r Canada , see Venne v. P.R. of Congo ((1969) 5 D.L.R. (3d) 128. 9 See Chapter One of Section One. 1 0 See Condorelli and Sb o l c i , "Measures of Execution against the Property of Foreign States: The Law and Practice i n I t a l y " 10 Neth. Y. B. I n t ' l . L. 197.(1979). 1 1 Bockstiegel, A r b i t r a t i o n and State Enterprises 50 (1984). v 1 2 [1924] A.C. 797. 1 3 43 F. (2d) 705 (1931). 1 4 Id. at 708. 1 5 (1971) J . DU Dr. I n t ' l . 131. 1 6 Id. at 132-3. 1 7 See Crawford, "Execution of Judgment and Foreign Sovereign Immunity" 75 Am. J . I n t ' l . L. 820 861 (1981). 1 8 77 I.L.R. 513. 1 9 Id. at 524. 2 0 1978, Ch. 33. 21 22 59 28 U,S.C. S.1330; S.1602 et seg. Note, however, that A r t i c l e 24 of the Convention allows contracting p a r t i e s , when signing or r a t i f y i n g the Convention, to make the reservation that: " I t s courts s h a l l be e n t i t l e d to entertain proceedings against another contracting state to the extent that i t s _ ^courts are e n t i t l e d to entertain proceedings against states not party to the present Convention." The United Kingdom and Belgium have made t h i s declaration. In those countries, therefore, i t i s possible to apply t h e i r r e s t r i c t i v e p r i n c i p l e s of immunity from execution to contracting p a r t i e s . 23 24 25 26 27 28 29 30 659 F Supp. 606. See L a l i v e , "Swiss Law and Practice i n Relation to Measures of Execution against the Property of a Foreign State" 10 Neth. Y. B. I n t ' l L.153. 154 Y1979). 23 I.L.R. 195. Id. at 198-199. 6 Y. Comm. Arb. 359 (1982). See A l b e r t van den Berg, "Some Recent Problems i n the Practice of Enforcement under the New York and ICSID Conventions" 2 ICSID Review 439, 449 (1987); Delaume, " J u d i c i a l Decisions Related to Sovereign Immunity and Transnational - A r b i t r a t i o n " 2 ICSID Review 403 (1987) ; Bernini and Jan van den Berg, "The Enforcement of A r b i t r a l Awards against a State: The Problem of\Immunity From Execution" i n Lew, Contemporary problems i n International A r b i t r a t i o n 359 (1986); McGovan, " A r b i t r a t i o n Clauses as Waivers of Immunity from J u r i s d i c t i o n and Execution under the Foreign Sovereign Immunities Act of 1976" 5 N.Y. Sch. J . I n t ' l . & Comp. L. 409,425 (1984). For example, Bernini and Jan van den Berg, Id at 366, suggest that apart from state property which enjoy immunity under i n t e r n a t i o n a l t r e a t i e s , such as the Vienna Convention on Diplomatic and Consular Relations, other state property should be open to execution. See L a l i v e , "Swiss Law and Practice i n Relation to Measures of Execution against the Property of a Foreign State" supra, note 23. 60 CHAPTER TWO INTERIM MEASURES OF PROTECTION I t may be necessary i n some situ a t i o n s f o r p a r t i e s to an a r b i t r a t i o n agreement : to require p r o v i s i o n a l measures to preserve the status quo pending the determination of the dispute. This need may a r i s e where one of the p a r t i e s seeks to f r u s t r a t e the enforcement of the award by hiding i t s assets. He may seek to relocate h i s funds so as to place i t outside the reach of the claimant should there be need f o r compulsory enforcement. The aim of p r o v i s i o n a l measures of protection i s to avoid a s i t u a t i o n where a claimant i s denied the f r u i t s of h i s v i c t o r y by factors which transpire before the award i s rendered. \ The need f o r interim measures of protection may ari s e before the a r b i t r a t i o n i s i n i t i a t e d . In such a case municipal courts may be resorted to f o r the grant of interim measures. Barring the question of immunity, a municipal court i n a country which i s a signatory to the New York Convention 1 may only assume j u r i s d i c t i o n i n such a case i f to do do would be consistent with the treaty obligations of i t s country under the Convention. P a r t i c u l a r l y germane here i s the question whether the New York Convention l i m i t s courts' power to order p r o v i s i o n a l r e l i e f . THE NEW YORK CONVENTION AND INTERIM MEASURES OF PROTECTION A r t i c l e 11(3) of the New York Convention has afforded the subject of considerable controversy i n the U.S. regarding the a b i l i t y " o f courts to"grant interim measures of protection i n disputes submitted to a r b i t r a t i o n . The a r t i c l e provides: "The court of a contracting state, when seized of an action i n a matter i n respect of which the pa r t i e s have made an agreement within the meaning of t h i s a r t i c l e , s h a l l , at the request of one of the pa r t i e s , r e f e r the part i e s to a r b i t r a t i o n , unless i t finds that the said agreement i s n u l l and void, inoperative or incapable of being performed." The U.S. Court of Appeal, Third C i r c u i t , i n McCreary T i r e & Rubber Co. v. CEAT 2 held that A r t i c l e 11(3) completely stripped the courts of the power to order interim measures of protection. The court found that the language of the a r t i c l e precluded the court from ordering any pr o v i s i o n a l r e l i e f : "The Convention forbids the courts of a contracting state from entertaining a s u i t which v i o l a t e s an agreement to a r b i t r a t e . Thus the contention that a r b i t r a t i o n i s merely another method of t r i a l , to which state p r o v i s i o n a l remedies should equally apply, i s unavailable." 3 The court anchored i t s holding on two grounds. F i r s t , the court w i l l be bypassing the p a r t i e s ' agreed method of s e t t l i n g t h e i r disputes i f i t awarded the r e l i e f . Second, since p r o v i s i o n a l r e l i e f vary from state to state, court interference w i l l f r u s t r a t e the uniformity of laws that the Convention was designed to achieve. This view was endorsed by the Fourth C i r c u i t i n I.T.A.D. v. Podar Bros 4. The court discharged a pre-award attachment on the ground that the attachment was "contrary to the p a r t i e s ' agreement to 62 a r b i t r a t e and the Convention". In Cooper v. A t e l i e r s de l a Motobecane S.A.6, the court affirmed the p r i n c i p l e i n McCreary and i t s progeny. The court summarized the r a t i o n a l e of the p r i n c i p l e : "The__essence of a r b i t r a t i o n i s resolving disputes without the interference of the j u d i c i a l process and i t s s t r i c t u r e s . When inte r n a t i o n a l trade i s involved, t h i s essence i s enhanced by the desire to avoid unfamiliar foreign law. The UN Convention has considered the problems and created a solution, one that does not contemplate s i g n i f i c a n t j u d i c i a l intervention u n t i l a f t e r an a r b i t r a l award i s made. The purpose and p o l i c y of the UN Convention w i l l be best c a r r i e d out ,by " r e s t r i c t i n g p r e a r b i t r a t i o n j u d i c i a l action to determining whether a r b i t r a t i o n should be compelled." 7 . Some courts i n the U.S. have refused to follow the reasoning i n McCreary and have contended that the New York Convention does not l i m i t the powers of the court to grant p r o v i s i o n a l r e l i e f . The D i s t r i c t Court f o r the Northern D i s t r i c t of C a l i f o r n i a i n C a r o l i n Power & Light Company v. Uranex 8 was of the view that the a v a i l a b i l i t y of p r o v i s i o n a l remedies encourages rather than obstructs the use of . . . . s agreements to a r b i t r a t e . I t further stated that there was no i n d i c a t i o n i n e i t h e r the text or the apparent p o l i c i e s of the Convention that resort to pre-award attachment was to be precluded. This l a t t e r view has been approved i n a couple of other cases. 9 These decisions r e j e c t the contention that a v a i l a b i l i t y of p r o v i s i o n a l remedies would disserve the Convention's purposes by obstructing the course of a r b i t r a t i o n proceedings. Rather they view court awarded prov i s i o n a l measures as a necessary support mechanism for the a r b i t r a t i o n process. 63 There i s nothing i n A r t i c l e 11(3) of the Convention that makes court awarded pr o v i s i o n a l measures incompatible with the framework of a r b i t r a t i o n . The purport of A r t i c l e 11(3) i s to preclude courts from determining the merits of dispute which i s the subject of an a r b i t r a t i o n agreement. 1 0 I t i s compatible with the s p i r i t of the Convention f o r courts to a s s i s t the process of a r b i t r a t i o n provided such assistance does not i n t e r f e r e with the competence of the a r b i t r a t o r s to determine the merits of the dispute. A r t i c l e 6 of the UNCITRAL Model Law on International Commercial A r b i t r a t i o n 1 1 c a l l s upon each state adopting the Model Law to entrust a p a r t i c u l a r 'court' with the performance of c e r t a i n functions of a r b i t r a t i o n assistance and supervision, r e l a t i n g to appointment of a r b i t r a t o r s ( a r t i c l e 11) , decisions i n termination of a r b i t r a t o r ' s mandate ( a r t i c l e s 13, 14), control of a r b i t r a l t r i b u n a l ' s j u r i s d i c t i o n ( a r t i c l e 16), and s e t t i n g aside of award ( a r t i c l e 34). These provisions i l l u s t r a t e the f a c t that court assistance i s indispensable to the e f f i c i e n t conduct of the a r b i t r a l process. Far from i n t e r f e r i n g with the j u r i s d i c t i o n of a r b i t r a t o r s , court ordered p r o v i s i o n a l measures may i n appropriate cases help i n f u l f i l l i n g the objectives of a r b i t r a t i o n i n cases where time i s of the essence of the safeguard measure. The controversy regarding the i n t e r p r e t a t i o n of A r t i c l e 11(3) i s absent i n j u r i s d i c t i o n s outside the United States. J u d i c i a l a u t h o r i t i e s i n other countries support the view that court awarded p r o v i s i o n a l r e l i e f i s not incompatible with the New York Convention. In The Rena K 1 2 the English Queen's Bench 64 D i v i s i o n held that the court was competent to maintain an attachment pending a r b i t r a t i o n where necessary to secure s a t i s f a c t i o n of an award. The I t a l i a n Corte d i Cassazione i n Sherk Enterprises A. G. v. Societe des Grandes Maeques 1 3 ruled that the court had power to order pre-award attachment. In Eurodif v. I r a n 1 4 the French Court of Cassation recognized the p o s s i b i l i t y of pre-award attachment of commercial assets of a state party. I t may therefore be concluded that court awarded p r o v i s i o n a l r e l i e f i s consistent with the s p i r i t of the New York Convention. The contrary view expressed i n some U.S. decisions i s an u n j u s t i f i a b l e extension of the p r e - a r b i t r a t i o n bias of U.S. courts. I t i s appropriate to enter the caveat that recourse to courts f o r pr o v i s i o n a l r e l i e f should be r e s t r i c t e d to cases where i t i s inconvenient or impossible to obtain the r e l i e f from a r b i t r a t o r s e i t h e r because the a r b i t r a l t r i b u n a l has not been constituted or that irreparable injury w i l l be occasioned by the delay associated with convening a meeting of a r b i t r a t o r s . This i s the approach adopted by the Rules f o r the ICC Court of A r b i t r a t i o n . A r t i c l e 8(5) provides i n part: "Before the f i l e i s transmitted to the a r b i t r a t o r s , and i n exceptional circumstances even thereafter, the p a r t i e s s h a l l be at l i b e r t y to apply to any competent j u d i c i a l authority f o r interim or conservatory measures,and they s h a l l not by so doing be held to i n f r i n g e the agreement to a r b i t r a t e or to a f f e c t the relevant powers reserved to the a r b i t r a t o r . " The provision recognizes the fac t that recourse to national courts may be the only means of obtaining p r o v i s i o n a l r e l i e f i n an emergency s i t u a t i o n . Before the c o n s t i t u t i o n of 65 the a r b i t r a l t r i b u n a l a party seeking p r o v i s i o n a l r e l i e f has no option than recourse to courts. But when the t r i b u n a l i s constituted i t i s only i n "exceptional circumstances" that a party may have recourse to courts f o r p r o v i s i o n a l r e l i e f . I t envisages s i t u a t i o n s where i t w i l l be d i f f i c u l t to convene the t r i b u n a l where the remedy i s sought urgently. STATE PRACTICE IN RELATION TO PROVISIONAL MEASURES 1. UNITED STATES Section 1610(d) of the U.S. Foreign Sovereign Immunities Act p r o h i b i t s the attachment of the property of a foreign state before judgment unless that state has expressly waived i t s immunity from attachment p r i o r to the judgment and the purpose of the attachment i s to secure s a t i s f a c t i o n of a judgment that has been or may be entered against the foreign state. Where a state waives i t s immunity from pre-judgment attachment, only i t s property used f o r a commercial a c t i v i t i e s i n the U.S. may be attached: S. 1609 provides f o r state immunity from attachment: "Subject to e x i s t i n g i n t e r n a t i o n a l agreements to which the United States i s a party at the time of Enactment of t h i s Act, the property i n the United States of a foreign state s h a l l be immune from attachment, arrest and execution except as provided i n sections 1610 and 1611 of t h i s chapter." The exceptions to t h i s general r u l e of immunity from attachment i s provided i n S. 1610(d): 66 "(d) The property of a foreign state, as defined i n section 1603(a) of t h i s chapter, used f o r a commercial a c t i v i t i e s i n the United States, s h a l l not be immune from attachment p r i o r to the entry of judgment i n any action brought i n a court of the United States or of a state^ ... i f -(1) the foreign state has expressly waived i t s immunity from attachment p r i o r to judgment, notwithstanding any withdrawal of the waiver the foreign state may purport to e f f e c t except i n accordance with the terms of the waiver, and (2) the purpose of the attachment i s to secure s a t i s f a c t i o n of a judgment that has been or may ultimately be entered against the foreign state and not to obtain j u r i s d i c t i o n . " A v a r i e t y of cases have arisen i n the U.S. over the meaning of " e x p l i c i t waiver" i n S. 1610(d)(1). The courts have come to require c l e a r evidence of the intention to waive the immunity from pre-judgment attachment, although that actual phrase need not be used. In Libre Bank Ltd. v. Banco Nacional de Costa R i c a 1 5 , the court considered the following waiver contained i n some promissory notes: "The Borrower hereby irrevocably and unconditionally waives any r i g h t or immunity from l e g a l proceedings including s u i t judgment and execution on grounds of sovereignty which i t or i t s property now or thereafter enjoys" The issue was whether the provision was an " e x p l i c i t " waiver within the meaning of S. 1610(d)(1). The court stated that the section does not require r e c i t a t i o n of the words "pre-judgment attachment" as an operative formula. I t found that the instant provision constituted " e x p l i c i t " waiver of immunity: "The p r o v i s i o n i n the promissory notes quoted above evinces a c l e a r and unambiguous intent to waive a l l claims of immunity i n a l l l e g a l proceedings. "Suit judgment" and "execution" are referred to only by way of examples of l e g a l proceedings. This 67 enumeration c l e a r l y i s not intended to be exhaustive. I f anything, i t suggests that pre-judgment attachment i s a form of " l e g a l proceedings". The waiver i s " e x p l i c i t " i n the sense that i t i s c l e a r and unambiguous. Banco National intended to reserve no r i g h t s of immunity i n any l e g a l proceedings." 1 6 In S & S Machinery Co. v. Masinexport import 1 7 the p l a i n t i f f claimed that an e x p l i c i t waiver of immunity could be found i n the following clause: "Nationals, firms, companies and economic organizations of eith e r party s h a l l be afforded access to a l courts, and, when applicable, to administrative bodies as p l a i n t i f f s and defendants, or otherwise, i n accordance with the laws i n force i n the t e r r i t o r y of such other Party. They s h a l l not claim or enjoy immunities from s u i t or execution of judgment or other l i a b i l i t y i n the t e r r i t o r y of the other Party with respect to commercial or f i n a n c i a l transactions except as may be ~ provided i n other b i l a t e r a l agreements." The court indicated that waivers of immunity from s u i t or from execution of judgment have no bearing upon the question of immunity from pre-judgment attachment. I t was of the view that the only language i n the above provision that might be construed as a waiver of immunity from pre-judgment was the waiver of immunity from "other l i a b i l i t y i n the t e r r i t o r y of the other party". I t held that the waiver of immunity from "other l i a b i l i t y " does not e x p l i c i t l y waive immunity from pre-judgment attachment because that phrase was i l l - s u i t e d to encompass pre-judgment attachments. The court r e i t e r a t e d the f a c t that an asserted waiver must demonstrate unambiguously the foreign s t a t e 1 s intention to waive i t s immunity from pre-judgment attachment i n the U.S., and i t distinguished the instant provision from that i n the Libra Bank case on the ground that i n the l a t t e r case the language of the agreement 68 was v i r t u a l l y a l l - i n c l u s i v e by waiving "any r i g h t or immunity from l e g a l proceedings". The issue of pre-judgment attachment also arose i n Security P a c i f i c National Bank v. Government of I r a n 1 8 . The issue f o r determination was whether a provision of the Treaty of Amity between the U.S. and Iran constituted e x p l i c i t waiver of immunity. The Treaty provided i n part: "No enterprise of eith e r [the U.S. or I r a n ] . . . s h a l l , i f i t engages i n commercial... a c t i v i t i e s within the t e r r i t o r y of the other [country], claim or enjoy , e i t h e r f o r i t s e l f or f o r i t s property, immunity therein from taxation, s u i t , execution of judgment or other l i a b i l i t y to which p r i v a t e l y owned and c o n t r o l l e d enterprises are subject therein." Judge Kelleher noted that the FSIA creates a strong presumption against pre-judgment attachments. His Honor then held that the above-quoted provision of the Treaty of Amity e x p l i c i t l y waived Iran's immunity from execution of judgment, but not i t s immunity from pre-judgment attachments. The preceding survey of American decisions suggests that a d i s t i n c t i o n e x i s t s i n U.S. jurisprudence between \ immunity from execution of judgment and immunity from pre-judgment attachment. A waiver of the one does not imply a waiver of the other. To constitute a waiver of immunity from pre-judgment attachment i n the U.S., the words must be unambiguously consistent with the fa c t of waiver although the p a r t i c u l a r words need not be used, and a waiver of immunity from execution w i l l not s u f f i c e i n t h i s respect. The approach adopted by U.S. statute and case law may impede the r e a l i z a t i o n of an award obtained against a state party. There i s no compelling reason why immunity from pre-69 _ j u d g m e n t a t t a c h m e n t s h o u l d b e g r a n t e d t o s t a t e p r o p e r t y u s e d f o r c o m m e r c i a l p u r p o s e s . I n s t e a d o f r e q u i r i n g a w a i v e r o f p r e -j u d g m e n t i m m u n i t y , U . S . l a w s h o u l d h a v e d e m a n d e d f r o m a c l a i m a n t c o g e n t a n d c o m p e l l i n g e v i d e n c e t h a t a s t a t e s e e k s t o s h u f f l e i t s c o m m e r c i a l a s s e t s i n a m a n n e r t h a t w i l l m a k e i t d i f f i c u l t f o r h i m t o r e a l i z e a n y e n s u i n g a w a r d . S u c h a b u r d e n o f p r o o f w i l l e n s u r e t h a t s t a t e p r o p e r t y i s n o t u n n e c e s s a r i l y i n t e r f e r e d w i t h d u r i n g t h e p e n d e n c y o f a n a r b i t r a t i o n . T h i s a p p e a r s t o b e t h e s a m e o b j e c t i v e w h i c h U . S . l a w s e e k s t o u p h o l d b y g r a n t i n g p r e - j u d g m e n t i m m u n i t y t o s t a t e p r o p e r t y . 2 . U N I T E D K I N G D O M U n d e r t h e U . K . S t a t e I m m u n i t y A c t , p r e - j u d g m e n t a t t a c h m e n t i s o n l y p e r m i s s i b l e w i t h t h e c o n s e n t o f t h e s t a t e i n v o l v e d . S . 1 3 ( 2 ) p r o v i d e s i n p a r t : " ( 2 ) S u b j e c t t o s u b s e c t i o n s ( 3 ) a n d ( 4 ) b e l o w -( a ) r e l i e f s h a l l n o t b e g i v e n a g a i n s t a s t a t e b y w a y o f i n j u n c t i o n o r o r d e r f o r s p e c i f i c p e r f o r m a n c e o r f o r t h e r e c o v e r y o f l a n d o r o t h e r p r o p e r t y . . . " S u b s e c t i o n ( 3 ) p r o v i d e s t h a t a s t a t e m a y c o n s e n t t o t h e g i v i n g o f s u c h p r o v i s i o n a l r e l i e f . T h e e x c e p t i o n t o ' i m m u n i t y f r o m e x e c u t i o n i n s e c t i o n 1 3 ( 4 ) w h i c h d e a l s w i t h p r o p e r t y u s e d f o r c o m m e r c i a l t r a n s a c t i o n s d o e s n o t a p p l y t o s e c t i o n 1 3 ( 2 ) ( a ) . I t i s t h e r e f o r e n o t p o s s i b l e i n t h e U . K . t o o b t a i n a m a r e v a i n j u n c t i o n 1 9 o r d e r i n g t h a t a s s e t s o f a s t a t e r e m a i n w i t h i n t h e j u r i s d i c t i o n p e n d i n g t h e o u t c o m e o f a n a r b i t r a t i o n p r o c e e d i n g , u n l e s s t h e s t a t e p a r t y c o n s e n t e d t o s u c h a 2 0 m e a s u r e . 70 Like the U.S. FSIA, submission to the j u r i s d i c t i o n of the court i s not regarded as consent to p r o v i s i o n a l r e l i e f . I t would also seem that consent to execution does not necessarily imply consent to p r o v i s i o n a l r e l i e f , because section 13 treats them as two d i s t i n c t stages. 3. CANADA The State Immunity Act of Canada, 1982, contains s i m i l a r provisions to i t s B r i t i s h counterpart as regards pre-judgment attachment. S.10 provides that no r e l i e f by way of an injunction, s p e c i f i c performance or the recovery of land or other property may be granted against a foreign state unless the state consents i n w r i t i n g to such r e l i e f . I t further provides that where a state so consents, the r e l i e f granted s h a l l not be greater than that consented to by the state. S. 10(2) makes i t c l e a r that submission by a foreign \ state to the j u r i s d i c t i o n of court does not amount to consent for the purposes of the section. For consent to be v a l i d as a waiver under S. 10(1), such consent must r e l a t e d i r e c t l y to p r o v i s i o n a l r e l i e f . The provisions of S. 11 e n t i t l e d 'execution' r e l a t e only to post-judgment measures. Reference to the term attachment i n that section, i t i s submitted, re l a t e s e x c l u s i v e l y to post-judgment attachment measures. This i s because the section contemplates measures poster i o r to an award or a judgment. Pre-judgment attachment i s not of the same nature with post-judgment execution. I t i s submitted that the exception i n S . l l 71 making state property used f o r commercial a c t i v i t y susceptible to attachment r e l a t e s only to post-award or post-judgment attachment. A d i f f e r e n t i n t e r p r e t a t i o n w i l l render nugatory the provisions of S. 10. 4.FRANCE In France there i s j u d i c i a l authority f o r the proposition that states are not immune from pre-award attachment. Only commercial assets are attachable and such assets must have a l i n k with the transaction out of which the claim a r i s e s . Islamic Republic of Iran v. Societe E u r o d i f 2 1 affords support f o r t h i s proposition. Eurodif was established by e n t i t i e s of four European states to f a c i l i t a t e the construction and ex p l o i t a t i o n of an uranium plant i n Iran. Iran entered into Co-operation agreement with the french government f o r the construction of an atomic plant. Under the v agreement the Iranian government agreed to make loans to Eurodif. the Iranian government defaulted on various payments under the agreement. Eurodif submitted i t s claim to ICC a r b i t r a t i o n and garnished funds due to Iran. On appeal to the Court of Appeal, the attachment was set aside on the ground that there was no evidence that the funds attached were i n use fo r commercial purposes. On further appeal to the Court of Cassation, the court rejected Iran's argument that the attachment in f r i n g e d i t s immunity from execution. The court held that immunity could be set aside where the assets attached had been allocated f o r a commercial a c t i v i t y of a 72 private nature upon which the claim i s based. The e f f e c t of t h i s judgment i s that pre-award attachment of commercial assets of a state i s possible i n France, provided the assets are allocated to the commercial a c t i v i t y upon which the claim i s based. CONCLUSION The above survey reveals that there are b a s i c a l l y two approaches to the issue of p r o v i s i o n a l measures: some countries require a waiver of immunity from pre-judgment attachment before such a measure could be granted, whereas the res t grant such measures i n respect of property used for commercial purposes. I t i s apparent that indiscriminate use of such measures against state property may lead to abuse with the attendant adverse consequences on the operation of the government concerned. What i s not so c l e a r i s whether the only method of protecting state property from such abuse i s by granting them immunity from pre-award attachment. Situations may a r i s e where a state seeks to relocate i t s assets i n such a manner that the claimant would not be able to get to them should he obtain a favorable award. To require a waiver of immunity from pre-judgment award i n such a s i t u a t i o n i s to i n f l i c t an unnecessary burden on the claimant. I t i s consistent with the ends of equity that a state should be prevented from acting i n such a manner that would negate the essence of the a r b i t r a l process. No harm would be done to the i n t e r e s t s of the state 7 3 by requiring i t to guarantee that i t would not f r u s t r a t e the a r b i t r a l process. Such p r o v i s i o n a l measures should only be granted i n sit u a t i o n s where the claimant c l e a r l y establishes that irreparable i n j u r y w i l l be done to h i s claim i f the injunction i s not granted. The court should require unambiguous evidence that the state involved seeks to f r u s t r a t e the objectives of the a r b i t r a t i o n by placing i t s assets beyond the reach of the claimant should h i s claim be successful. Even then, such attachment should only be ordered i n respect of commercial assets of the state party. In summary, the a v a i l a b i l i t y of p r o v i s i o n a l measures against a state party to a r b i t r a t i o n i s an area where state p r a c t i c e d i f f e r s . The view that p r o v i s i o n a l measures i s an indispensable adjunct of the a r b i t r a l process appears to be the better view. To require a waiver of immunity i n such cases w i l l enable states to shu f f l e t h e i r assets so as to place them beyond the reach of successful claimants. There i s no reason why the r e s t r i c t i v e theory of immunity should not be extended to pre-judgment measures of attachment. Some l e v e l of caution i s advocated. The private party must e s t a b l i s h an attempt by the state party to f r u s t r a t e the r e a l i z a t i o n of the impending award by an action contemplated or taken during the pendency of the a r b i t r a l proceedings. Unrestricted award of such r e l i e f may t i e down funds needed f o r urgent government a f f a i r s . 74 FOOTNOTES 1 United Nations Convention on the Recognition and Enforcement of Foreign A r b i t r a l Awards 330 U.N.T.S. 38. 2 501 F. 2d 1032 (1974). 3 Id. at 1038. 4 636 F. 2d 75 (1981). 5 Id. at 77. 6 456 N.Y.S. 2d 728. 7 I d v •• -.. • -. 8 451 F. Supp. 1044 (.1977) . 9 Andros Compania Maritima v. Andre & Cie. 430 F. Supp. 88 (1977) ; Compania de Naviqacion y Financiera Bosnia v. National Unity Marine Salvage Corp. 457 F. Supp. 1013 (1978) . 1 0 See Jan van den Berg, "Some Recent Problems i n the Practice of Enforcement under the New York and ICSID Conventions" 2 ICSID Review 439, 452 (1987). 1 1 Adopted by the United Nations Commission on International Trade Law on June 21, 1985. 1 2 [1978] 3 W.L.R. 431.-1 3 4 Y. B. Comm. Arb. 286 (1979). 1 4 23 I.L.M. 1062. 1 5 676 F. 2d 47 (1982). 1 6 Id. at 49. 1 7 706 F. 2d 411 (1983). 1 8 513 F. Supp. 864 (1981). 1 9 The injunction i s named a f t e r the case of Mareva Compania Naviera v. International Bulkcarriers [1975] 2 LL.R. 509. The injunction r e s t r a i n s defendants from s e l l i n g , disposing, or otherwise removing assets from the j u r i s d i c t i o n . 2 0 See Crawford, "Execution of Judgment and Foreign Sovereign Immunity" 75 Am. J . I n t ' l L. 820, 869 (1981). 75 77 I.L.R. 513 (1988). In Guinea v. A t l a n t i c T r i t o n Company 26 I.L.M. 373 (1987),the French Court of Cassation confirmed pre-award attachment on the property of Guinea. The court was of the opinion that the ICSID Convention does not exclude the power of a state court to order conservatory measures i n connection with ICSID a r b i t r a t i o n s , unless the pa r t i e s expressly exclude such interference. 76 CHAPTER THREE : MEASURES OF EXECUTION 1. DIFFERENCE BETWEEN RECOGNITION AND EXECUTION E x e c u t i o n o f a n a w a r d c a n o n l y e n s u e a f t e r r e c o g n i t i o n o f t h e a w a r d b y t h e c o u r t s o f t h e c o u n t r y c o n c e r n e d . R e c o g n i t i o n may t a k e t h e f o r m o f c o n f i r m a t i o n , 7 a n e x e q u a t u r o r s i m i l a r p r o c e e d i n g s . R e c o g n i t i o n a c c o r d s t h e a w a r d a s e a l o f a p p r o v a l a n d a s s i m i l a t e s i t t o t h e s t a t u s o f a m u n i c i p a l c o u r t j u d g m e n t i n t h e c o u n t r y c o n c e r n e d . The e x e c u t i o n s t a g e , o n t h e o t h e r h a n d , i n v o l v e s t h e e n f o r c e m e n t b y e x e c u t i o n o f t h e a w a r d a g a i n s t t h e p r o p e r t y o f a s t a t e . I t i s t h i s l a t t e r a c t t h a t n e c e s s i t a t e s t h e u s e o f c o e r c i v e p o w e r s o f o n e s t a t e a g a i n s t t h e p r o p e r t y o f a n o t h e r . R e c o g n i t i o n o f a n a w a r d i s c o n s i d e r e d t h e u l t i m a t e p h a s e o f t h e a r b i t r a t i o n p r o c e s s i n t h o s e c o u n t r i e s w h e r e a d i s t i n c t i o n i s made b e t w e e n i m m u n i t y f r o m j u r i s d i c t i o n a n d i m m u n i t y f r o m e x e c u t i o n . I n s u c h l e g a l s y s t e m s t h e w a i v e r o f i m m u n i t y c o n s t i t u t e d i n a n a r b i t r a t i o n c l a u s e e x t e n d s t o t h e r e c o g n i t i o n o f t h e a w a r d , b u t n o t t o i t s e x e c u t i o n . T h i s d i s t i n c t i o n i s r e c o g n i z e d b y t h e I C S I D C o n v e n t i o n . U n d e r A r t i c l e 54 o f t h e C o n v e n t i o n , a s t a t e c a n n o t r a i s e t h e d e f e n s e o f s o v e r e i g n i m m u n i t y a t t h e t i m e o f r e c o g n i t i o n o f a n I C S I D 7 7 award. A r t i c l e 55, however, leaves the issue of execution to the immunity r u l e obtainable i n p a r t i c u l a r contracting states. J u d i c i a l a u t horities i n France and the U.S. recognize " t h i s d i s t i n c t i o n . In Benvuti & Bonfant v. Congo 1, Benvuti was successful i n an ICSID a r b i t r a t i o n against Congo._It sought to enforce the award i n France. The President of the Court of F i r s t Instance of Paris, granted recognition of the award. He, however, added a caveat that "no measure of execution, or even a conservatory measure, can be taken pursuant to the said award on any assets located i n France without our p r i o r authorization". On appeal to the Court of Appeal of Paris, Benvuti contended that the caveat impeded any possible execution and that the lower court confused two stages: that of the exequatur, and that of the execution proper. The court held that an order to enforce an a r b i t r a l award does not constitute an act of execution. I t further ruled that the caveat must be deleted because the lower court exceeded i t s j u r i s d i c t i o n by i n t e r f e r i n g with the execution stage\ which i s subsequent to the exequatur proceedings. L i b e r i a Eastern Timber Corp. v. L i b e r i a 2 concerned proceedings by LETCO to enforce an ICSID award against L i b e r i a i n th U.S. L i b e r i a prayed the court to vacate the judgment entered by the D i s t r i c t Court on the award or to vacate the execution of the judgment on Li b e r i a n r e g i s t r a t i o n fees and other taxes due by shippowners and l e v i e d by agents appointed by L i b e r i a i n New York. The court refused to vacate the judgment based on the award because as a signatory to the ICSID Convention, L i b e r i a waived i t s sovereign immunity i n the _ 78 U.S. with respect to enforcement of a r b i t r a t i o n awards under the Convention. This i s because L i b e r i a must have contemplated the involvement of the courts of the U.S. [as a contracting state] i n enforcing the pecuniary obligations of the ICSID award. The court, however, granted the prayer to vacate the execution order on the r e g i s t r a t i o n fees and other taxes due to L i b e r i a , as they were not commercial property and thus were immune from execution under the FSIA. . Although the court recognized the award, i t refused to grant the execution on non-commercial assets of L i b e r i a . L i b e r i a 1 s waiver of immunity at the recognition stage d i d not extend to i t s immunity from execution.^It i s c l e a r from the above decision that the recognition and execution stages are d i f f e r e n t . While the waiver of immunity by consent to a r b i t r a t i o n extends to the former, the l a t t e r remains i n t a c t except where i t i s d i s t i n c t l y waived. \ 2. PROPERTY SUBJECT TO EXECUTION State p r a c t i c e i n r e l a t i o n to execution of awards on state property r e f l e c t s the need to balance two c o n f l i c t i n g i n t e r e s t s : to a f f o r d a remedy to the private party and also to prevent p o l i t i c a l embarrassment of the state party. I t seems l i k e l y that a state may be embarrassed by enforcement of an a r b i t r a l award which d i r e c t l y i n t e r f e r e s with the exercise of i t s sovereign r i g h t s . I f no r e s t r i c t i o n i s placed on the nature of state property susceptible to execution, the state judgment debtor may have execution l e v i e d on i t s funds that are a l l o c a t e d f o r sovereign and diplomatic a c t i v i t i e s . On the other hand, i t w i l l be unconscionable to leave the private party without an e f f e c t i v e remedy i n law. He should be able to have a reasonable expectation that the state party w i l l f u l f i l l i t s l e g a l . o b l i g a t i o n s . The immunity rules applicable i n various states attempt to reconcile t h i s c o n f l i c t . I t i s generally recognized that foreign state property indispensable i n the exercise of sovereign acts by the foreign states i s exempt from enforcement measures i n the forum where execution i s sought. In issue here i s the c r i t e r i a to be used i n d e l i m i t i n g state property immune from execution. The f i r s t one i s based on the nature of the a c t i v i t y which has given r i s e to the proceedings. This c r i t e r i o n leads to immunity from execution being set aside i n circumstances which are comparable to those i n which immunity from j u r i s d i c t i o n i s excluded, where privat e a c t i v i t i e s are involved. Another c r i t e r i o n i s based on the nature of the,funds or assets against which the measure of execution i s directed. Here a d i s t i n c t i o n i s made between p u b l i c funds, against which no measure of execution may be le v i e d , and other funds of a private nature, which may be subj ect to attachment and are not protected by immunity from execution. Most l e g a l systems adopt the second t e s t . I t takes account of the increasing intervention of the state and i t s agencies i n the economic sphere. One of the problems with the t e s t , however, l i e s i n determining the person on whom the burden l i e s to prove the commercial nature of the funds i n 80 question. This problem i s compounded by the need for the protection of state secrets and the d i f f i c u l t y attendant i n requiring a private party to prove the commercial nature of state funds. As we s h a l l see, l e g a l systems give varying solutions to t h i s problem. A. UNITED STATES ' Pr i o r to the FSIA, foreign states were generally immune from execution. 3 The FSIA modified the r u l e so as to make immunity from execution conform c l o s e l y with the provisions on j u r i s d i c t i o n a l immunity. S. 1609 provides that the property of foreign states are immune from attachment, arrest and execution except as provided i n the FSIA and inte r n a t i o n a l agreements to which the U.S. i s a party at the time the FSIA came into e f f e c t . The reference to inte r n a t i o n a l agreements alludes to bi-national i \ and m u l t i - l a t e r a l t r e a t i e s which provide f o r waivers of immunity from execution by the contracting p a r t i e s . Exceptions to the immunity from execution i s contained i n S.1610. I t provides that the property of a foreign state used for a commercial a c t i v i t y i n the U.S. are not immune from execution where, i n t e r a l i a , the foreign state waives i t s immunity from execution eit h e r e x p l i c i t l y or by implication, or the property i s or was used f o r the commercial a c t i v i t y upon which the claim i s based. S. 1610(a) (6) makes i t clear that the commercial assets of a state s h a l l not be immune from attachment i n a i d of execution or from execution upon a 81 judgment entered by a U.S. court i f the judgment i s based on an order confirming an a r b i t r a l award rendered against the foreign state, provided that attachment i n a i d of execution would not be inconsistent with any provision i n the a r b i t r a l agreement. Therefore once an award i s recognised by U.S. courts, i t may be enforced agaisnt commercial assets of any state involved. In t h i s sense, consent to a r b i t r a t i o n by a state party precludes i t from claiming immunity from execution. In Birch Shipping Corp. v. Embassy of Tanzania 4. the p a r t i e s submission . agreement contained the -following provision: "We further agree that we w i l l f a i t h f u l l y observe t h i s agreement and the Rules and that we w i l l abide by and perform any Award rendered pursuant to t h i s agreement and that judgment of the court having j u r i s d i c t i o n may be entered upon the Award." The court held that the provision was an i m p l i c i t waiver of immunity by Tanzania. The court further stated that while an agreement to entry of judgment reinforces any waiver, an agreement to a r b i t r a t e , standing alone, i s s u f f i c i e n t to i m p l i c i t l y waive immunity. 5 I t should be remembered that the statute adopts a two-step analysis. F i r s t , the foreign state must have waived i t s immunity and, second, the property must be used f o r a commercial purpose. I t follows that even when a state i s held to waive i t s immunity by consenting to a r b i t r a t i o n , only i t s commercial assets can be l e v i e d f o r execution. I t was held i n L i b e r i a Eastern Timber Corp. v. L i b e r i a 6 that execution could not be l e v i e d on agents of L i b e r i a to 82 c o l l e c t tonnage fees, r e g i s t r a t i o n fees and other taxes due L i b e r i a government from shippowners, because those fees were tax revenues, the execution upon which was prohibited by the FSIA. The court stated that LETCO could issue execution with respect to any properties which are used f o r commercial a c t i v i t i e s and f a l l within one of the exceptions to section 1610. The FSIA does not state on whom the burden l i e s to prove the commercial nature of the funds i n question. This issue has not been addressed i n any U.S. decision within the knowledge * . . . . -of the writer. Given that the general r u l e under S.1610 i s that of immunity from execution, i t would seem that the burden i s on the claimant to f i t h i s case within one of the exceptions i n S.1610. He should be able to e s t a b l i s h the commercial use of the funds. Due to the d i f f i c u l t y of discharging such a burden, the standard of proof required should be considerably low. I t should be the case that where the p r i v a t e party gives probable evidence of the commercial use of the fund's, the burden reverts to the state party to disprove such suggestion. Even then, proper regard ^ should be given to the need to protect state secrets. Another problem that has arisen out of the FSIA i s that of mixed funds. I t i s sometimes the case that state funds are used f o r both commercial and non-commercial purposes. A state may use i t s foreign bank account to service the needs of i t s embassy and other consequential commercial a c t i v i t i e s . Can such funds be attached under the commercial a c t i v i t y exception? 83 Birch Shipping Corp. v. Embassy of Tanzania 7 was the f i r s t case to address the issue. The p l a i n t i f f got an a r b i t r a l award against Tanzania. The D i s t r i c t Court of the Southern D i s t r i c t of New York confirmed and registered the award. The p l a i n t i f f then obtained a writ of garnishment and served i t upon American Security Bank where the defendant maintained a checking account. The defendant moved to quash the wr i t on the ground that the funds were immune from attachment under the FSIA. I t submitted an a f f i d a v i t that the funds were s o l e l y f o r the purpose of the maintenance and support of the embassy and i t s personnel. The a f f i d a v i t further stated that the funds were used to "pay the s a l a r i e s of the. embassy o f f i c i a l s , pay fo r i n c i d e n t a l purchases and services necessary and in c i d e n t a l to the operation of the Embassy..." The issue that f e l l f o r determination was whether i t was proper to attach an account not used s o l e l y f o r commercial a c t i v i t i e s . The court held that mixed accounts were not immune from execution because the FSIA d i d not exempt such funds from execution. To hold otherwise, the court stated, would operate to defeat the'^express intention of Congress to provide parties a remedy i n s u i t s against foreign states. This decision implies that commercial debts of states can be enforced out of t h e i r funds (other than monies i n i t s Central Bank: S.1611) located f o r whatever purposes within the j u r i s d i c t i o n . I f embassy funds u t i l i z e d f o r commercial purposes consequential to the operation of the embassy i s regarded as givi n g the funds a commercial t a i n t , then v i r t u a l l y a l l state funds w i l l be attachable. There w i l l be no 84 need f o r a general r u l e of immunity because even state funds used f o r predominantly sovereign acts are also u t i l i z e d for commercial a c t i v i t i e s i n c i d e n t a l to the execution of such sovereign acts. Such measures of execution w i l l no doubt lead to considerable p o l i t i c a l misunderstandings between states and states may remove t h e i r assets from j u r i s d i c t i o n s that deny immunity to t h e i r funds. 8 The D i s t r i c t Court of the D i s t r i c t of Columbia i n L i b e r i a Eastern Timber Corp. v. L i b e r i a 9 refused to follow Birch. Pursuant to an ICSID award i n favor of LETCO, writs were / . . . . issued attaching L i b e r i a ' s bank account at Riggs National Bank and at F i r s t American Bank. These accounts were used f o r the functioning of the Li b e r i a n Embassy and f o r i t s Central Bank. I t was held that the account enjoyed diplomatic immunity under the Vienna Convention on Diplomatic Relations of 1 9 6 l 1 0 and also because no exception i n the FSIA applied to deprive the funds of immunity under the FSIA. The court rejected the view that once any portion of a bank account i s used f o r a commercial a c t i v i t y , the ent i r e account loses i t s immunity. I t stated that commercial a c t i v i t i e s which are ' i n c i d e n t a l ' or • a u x i l i a r y ' , not denoting the e s s e n t i a l character of the use of the funds i n question, would not cause the e n t i r e bank account to loose i t s immunity. 1 1 I t further stated that the concept of commercial a c t i v i t y should be defined narrowly because sovereign immunity remains the r u l e rather than the exception, and f o r the further reason that courts should be cautious when addressing areas that a f f e c t the a f f a i r s of foreign governments. 85 This i s the better approach to the problem of mixed funds. Where the commercial a c t i v i t y i s merely i n c i d e n t a l to the sovereign a c t i v i t y , the funds should be immune. I f the sovereign a c t i v i t y i s used f o r the singular purpose of masking the commercial use of the funds, i t would seem consistent with the notions of f a i r p l a y and equity to deny immunity to such funds. The t e s t should be whether the commercial use of the funds i s e s s e n t i a l to the conduct of governmental a c t i v i t y and . the e f f e c t the attachment of the funds w i l l have on the conduct of the sovereign a c t i v i t i e s of the state i n question. B. UNITED KINGDOM ' S. 13(2) (b) of the U.K. State Immunity Act provides f o r the immunity of state property from measures of execution. I t states, i n t e r a l i a , that the property of a state s h a l l not be subject to any process f o r the enforcement of a judgment or \ a r b i t r a t i o n award. A state may under S. 13(3) waive i t s immunity by consenting to measures of execution. Such consent, which may be contained i n a p r i o r agreement, may be expressed to apply to a l i m i t e d extent or generally. The subsection c l e a r l y distinguishes between waiver of immunity from s u i t and waiver of immunity from execution. I t states that submission to the j u r i s d i c t i o n of the courts does not constitute waiver of immunity from execution. The consent envisaged by the section i s one that unambiguously contemplates waiver of immunity from execution. I t would seem that an a r b i t r a t i o n clause standing 86 _ alone does not constitute a waiver under the subsection. State property which i s i n use or intended for use for commercial purposes i s not immune from execution under S.13(4). This provision i s akin to the c o m m e r c i a l - a c t i v i t y exception under S. 1610 of the FSIA The problem of mixed funds i s not addressed i n the statute. The issue confronted the House of Lords i n Alcorn v. Republic of Colombia 1 2. The p l a i n t i f f sought to enforce a court judgment against Colombia by garnishing i t s bank accounts held to the c r e d i t of i t s London embassy. I t succeeded i n obtaining a garnishee order n i s i against the accounts. Colombia moved the court to discharge the orders, claiming immunity from execution under the State Immunity Act. The Colombian Ambassador c e r t i f i e d that the funds i n the accounts were not used or intended f o r use f o r commercial purposes but to meet the expenditure necessarily incurred i n the day-to-day running of the diplomatic mission. The court of f i r s t instance set aside the garnishee order on the ground that the primary purpose of the funds were f o r a non-commercial purpose, to wit, running the embassy, and was consequently immune under the State Immunity . Act. The p l a i n t i f f , the court stated, d i d not e s t a b l i s h that the funds were wholly or predominantly i n use for commercial a c t i v i t i e s and, as the garnishee orders attached to the whole account without d i s t i n c t i o n , i t ought to be set a s i d e . 1 3 On appeal to the Court of Appeal, the garnishee orders were restored. The court stated that the purpose of the bank account could not be to "run an embassy1, but rather was to 87 -pay f o r goods and services to enable the embassy to be run. That purpose, the court held, f e l l within the commercial purposes as defined i n section 17 of the Act and was therefore not immune from execution. This decision i s wide enough to make a l l embassy funds attachable. The p o l i t i c a l implication of t h i s approach i s no doubt considerable. The House of Lords reversed the Court of Appeal's decision. Lord Diplock, reading the lead judgment, stated that unless i t can be shown by the p l a i n t i f f that the bank account was earmarked by the foreign state s o l e l y (save f o r de minimis exceptions) f o r being drawn on to s e t t l e l i a b i l i t i e s incurred i n commercial transactions, i t cannot be brought within the words of the exception provided i n S.13(4). He further stated that attachment of mixed funds may hamper the day-to-day running of the diplomatic mission. The court restated the provisions of S. 13(5) which provided that evidence by the head of a state's diplomatic mission as to the use of p a r t i c u l a r state fund s h a l l be accepted as sufficient.evidence of that f a c t unless the contrary i s proved. The House of Lords decision acknowledges the need fo r the protection of funds held by states f o r sovereign purposes. I t also affirms the f a c t that i n c i d e n t a l use of such funds for commercial a c t i v i t i e s does not s t r i p them of immunity from execution. The decision does not address the si t u a t i o n s where the sovereign use i s aimed at masking the commercial use of such property. I t i s submitted that i n such s i t u a t i o n s , the funds should not be immune from execution. 88 Lord Diplock further stated that the onus of proving the commercial use of the property i n question l i e s on the judgment c r e d i t o r . The judgment c r e d i t o r also has the burden of disproving the correctness of"the ambassador's c e r t i f i c a t e under S. 13(5) . C. FRANCE In France sovereign immunity bars execution on the property of a foreign state unless i t i s proved that the property i s used f o r the commercial purpose upon which the claim i s based. The requirement f o r a connection between the funds i n dispute and the underlying commercial transaction follows the provi s i o n of S. 1610 (a) (20) of the U.S. FSIA. The section provides that state property used f o r commercial a c t i v i t y i s not immune from execution i f the property i s used f o r the commercial a c t i v i t y upon which the claim i s based. The French Court of Cassation i n E u r o d i f 1 4 held that although foreign states enjoyed immunity from execution as a matter of p r i n c i p l e , the immunity could be set aside where the assets attached had been allocated f o r a commercial a c t i v i t y of a privat e law nature upon which the claim was based. This r e s t r i c t i o n on the a v a i l a b i l i t y of commercial assets of states f o r execution i s unwarranted. I f a state uses a p a r t i c u l a r fund f o r commercial a c t i v i t i e s there i s no j u s t i f i a b l e reason why i t s f i n a n c i a l obligations should not be met from that fund i r r e s p e c t i v e of the connection between the funds and the transaction i n question. To hold otherwise may 8 9 .imply that a privat e party may not have a remedy where a state closes the account from which i t transacts the p a r t i c u l a r business. I t should be the case that once the underlying f i n a n c i a l agreement has a connection with the forum, a private party should be able to levy execution on the commercial assets of the state party. D. CANADA The Canadian State Immunity Act commences with the general r u l e that the property of a foreign state located i n Canada i s immune from execution, "attachment, arrest, detention, seizure or f o r f e i t u r e . 1 5 This p r o v i s i o n i s compatible with the general r u l e of immunity contained i n both the American and the B r i t i s h l e g i s l a t i o n s . The immunity from execution could be waived eith e r expressly or by implication under S.11(1)(a). An i n t e r e s t i n g issue i s whether an i m p l i c i t waiver can be interpreted to extend to non-commercial assets of the state. The section does not address t h i s issue. I t appears consistent with the p r i n c i p l e of according immunity to non-commercial assets of states to require express and unambiguous waiver of the immunity accorded to such assets before process can be l e v i e d on them. Even then, most states would be reluctant to attach non-commercial state property, e s p e c i a l l y where such property i s used f o r sovereign a c t i v i t i e s . State property used or intended f o r a commercial a c t i v i t y i s subject to measures of execution under S.11(b). Commercial 90 a c t i v i t y i s defined i n S . 2 as any p a r t i c u l a r transaction, act, or any regular course of conduct that by reason of i t s nature i s of a commercial character. Given the general r u l e of immunity of state property from measures of execution, i t seems to follow that the burden i s on the judgment c r e d i t o r to e s t a b l i s h that the property i n question i s used or i s intended f o r a commercial activity„ The standard of proof required should be modest. The court should attempt to balance the need fo r the protection of state secrets and the d i f f i c u l t y attendant i n a p r i v a t e party proving the commercial use of state funds. The d i f f i c u l t y of proving commercial use of p a r t i c u l a r funds becomes c l e a r when i t i s remembered that a state may s h u f f l e around i t s funds to conceal i t s commercial use. 3. NEED FOR JURISDICTIONAL LINK Some countries require a l i n k between the dispute under l i t i g a t i o n and t h e i r t e r r i t o r y before t h e i r courts can assume j u r i s d i c t i o n i n the s u i t . Where measures of execution a r e sought against a state pursuant to an a r b i t r a t i o n award, these countries require that the underlying contractual r e l a t i o n s h i p should be connected to t h e i r country before l o c a l courts c a n entertain arguments on the merits of the case. This requirement i s often grounded on economic and p o l i t i c a l considerations. Most countries are reluctant to levy execution on domestic and, p a r t i c u l a r l y , foreign investments i n t h e i r countries i n enforcement of awards a r i s i n g from contracts which have no connection with the forum. This f a c t i s p a r t i c u l a r l y true of Switzerland which has a banking sector that holds a considerable amount of monetary deposits from foreign organizations and i n d i v i d u a l s . The fear i s that these depositors may be compelled to close t h e i r accounts and remove t h e i r funds to other countries where greater protection i s afforded against, execution. I t i s also thought that " j u r i s d i c t i o n a l j o c k e y i n g " 1 6 may lead to diplomatic repercussions which could embarrass the host country. I f fora which have no connection with the underlying contractual r e l a t i o n s h i p allow execution on state properly, there arises the p o s s i b i l i t y of r e t a l i a t i o n s and „strained diplomatic r e l a t i o n s between the countries involved. Swiss law requires a c l e a r connection between the commercial a c t i v i t i e s of the state i n question and Swiss t e r r i t o r y . This i s known as the concept of 'Binnenziehung 0„ 1 7 In Kingdom of Greece v. B a r 1 8 , a Swedish company loaned money to the Greek state. When the l a t t e r defaulted i n i t s repayment obligations, the court of f i r s t instance of Geneva, at the instance of the Swedish company, attached some money standing i n the name of the Greek state i n various Genevese banks. Greece challenged the attachment before the Swiss Federal Tribunal. The court held, i n t e r a l i a , that Swiss court could assume j u r i s d i c t i o n over the commercial acts of a foreign state i f these acts had some connection with the Swiss t e r r i t o r y : "Not every private law r e l a t i o n s h i p entered into by a foreign state can give r i s e to proceedings i n Switzerland. That r e l a t i o n s h i p must at l e a s t have 92 some l i n k s with Swiss t e r r i t o r y ... In order that a l e g a l r e l a t i o n s h i p to which a foreign state i s party may be considered to be connected with Swiss t e r r i t o r y , i t must eith e r have i t s o r i g i n i n Switzerland or f a l l to be performed i n Switzerland, or the debtor must have at l e a s t taken c e r t a i n steps which make Switzerland a place of performance" 1 9 Under Swiss law, therefore, the mere f a c t that a foreign state engaged i n a commercial a c t i v i t y which resulted i n an a r b i t r a t i o n award against i t does not permit enforcement proceedings against the foreign state. In addition to the commercial a c t i v i t y , the l e g a l r e l a t i o n s h i p involved must have a s u f f i c i e n t domestic connection to the t e r r i t o r y of Switzerland. Where t h i s domestic l i n k i s lacking, no Swiss court i s competent to exercise j u r i s d i c t i o n even where a state has waived i t s immunity from execution. This p r i n c i p l e was affirmed by the Swiss Federal Supreme Court i n Libya v. Libyan American O i l Coy. 2 0. A concession agreement between Libya and LIAMCO provided that a l l disputes i n connection with the concession where to be resolved by a r b i t r a t i o n . The a r b i t r a t i o n clause provided that i f one of the p a r t i e s does not appoint an a r b i t r a t o r when requested by the other party to do so, the Presiding Judge of the International Court of J u s t i c e s h a l l appoint a sole a r b i t r a t o r who s h a l l choose the seat of a r b i t r a t i o n and make a f i n a l d ecision i n the dispute. When a dispute arose under the agreement, Libya refused to appoint an a r b i t r a t o r and, pursuant to the the a r b i t r a t i o n agreement, the Presiding Judge of the ICJ appointed an a r b i t r a t o r who choose Geneva as the seat of a r b i t r a t i o n . The award was rendered i n favor of LIAMCO. 93 The Zurich D i s t r i c t Court, at the request of LIAMCO, attached f i n a n c i a l assets of Libya at c e r t a i n Zurich banks. On appeal to the Federal Tribunal, the attachment was vacated on the ground that the l e g a l r e l a t i o n s h i p between the p a r t i e s had no connection with Switzerland. The subject matter of dispute d i d not connect Switzerland: "Circumstances [must] e x i s t which t i e the l e g a l r e l a t i o n s h i p to such an extent with Switzerland that i t i s j u s t i f i e d to bring the foreign state before Swiss a u t h o r i t i e s , as there i s no reason, and does not s u b s t a n t i a l l y make any sense, to permit l e g a l actions against foreign states i f a somewhat intensive domestic r e l a t i o n s h i p i s lacking. The i n t e r e s t s of Switzerland do not require such a procedure; they could, on the contrary, e a s i l y cause p o l i t i c a l and other d i f f i c u l t i e s . " 2 1 A s u f f i c i e n t domestic r e l a t i o n s h i p existed, i n the court's opinion, i f the debt was contracted or was to be s e t t l e d i n Switzerland, or a foreign debtor state had engaged i n actions suited to e s t a b l i s h the venue i n Switzerland. Such a r e l a t i o n s h i p cannot be created by the mere l o c a t i o n of the assets of the foreign state i n S w i t z e r l a n d . 2 2 The court concluded that the mere f a c t that the sole a r b i t r a t o r located the seat of a r b i t r a t i o n i n Switzerland was too tenuous to found j u r i s d i c t i o n : " I f the seat of the A r b i t r a t i o n Board i s selected by t h i r d p a r t i e s or by the A r b i t r a t i o n Board i t s e l f , t h i s does not create a s u f f i c i e n t domestic r e l a t i o n s h i p to Switzerland; i n any case not i f the A r b i t r a t i o n Board i s r u l i n g on a dispute a r i s i n g from a l e g a l r e l a t i o n s h i p which, per se, has no contact points with Switzerland." 2 I t i s not c l e a r whether the court would have found s u f f i c i e n t connection with Switzerland i f the p a r t i e s had mutually chosen Geneva as the seat of a r b i t r a t i o n . The question whether or not the a r b i t r a t i o n agreement constituted 94 a waiver of immunity by Libya was considered immaterial because the existence of a j u r i s d i c t i o n a l l i n k was a condition precedent to the determination of the merits of the d i s p u t e . 2 4 This approach i s noteworthy because i n proceedings to enforce the LIAMCO award i n the U.S., i t was held that Libya waived i t s immunity from j u r i s d i c t i o n by submitting to a r b i t r a t i o n . 2 5 The U.S. court contended that since the seat of a r b i t r a t i o n was l e f t open i n the a r b i t r a t i o n agreement, the p a r t i e s must have anticipated that proceedings could have occurred i n the U.S. I t should be pointed out that a state signatory to either the New York or the Washington Conventions w i l l f i n d i t d i f f i c u l t to j u s t i f y insistence on j u r i s d i c t i o n a l l i n k s between an a r b i t r a t i o n and i t s forum. Once the award meets the v a l i d i t y t e s t under e i t h e r of the conventions, state signatories are required to recognise and enforce the award i r r e s p e c t i v e of the country where i t was obtained. 95 FOOTNOTES 1 20 I.L.M. 878 (1981). 2 3 4 5 650 F. Supp. 73 (1986). Goldman, "Enforcement of Foreign A r b i t r a t i o n Awards against Private Parties and Foreign States" i n Aksen & von Mehren, International A r b i t r a t i o n Between Private Parties and Governments 397, 409 (1982). 507 F. Supp. 311 (1980). Id. at 312. The court found support f o r t h i s view i n the l e g i s l a t i v e h i s t o r y of the statute: H. Rep. No. 94-1487, 94th Cong., 2d Sess., reprinted i n [1976] U.S. Code Cong. & Ad. News 6604 at 6617, 6627; and the decision i n Ipitrade v. F. R. Nigeria 465 F. Supp. 824, 826 (1978). 650 F.Supp. 73 (1986). Supra, note 4. When the English Court of Appeal held i n Alcorn v. Republic of Columbia [1983] 3 W.L.R. 906, that mixed funds were attachable, some diplomatic missions i n the U.K. moved or threatened to move t h e i r accounts to the Channel Islands and others made representations to the Foreign O f f i c e that on the grounds of r e c i p r o c i t y , U.K. missions abroad might f i n d t h e i r property l i a b l e to attachment. See, Fox„ "Enforcement J u r i s d i c t i o n , Foreign State Property and Diplomatic Immunity" 34 I.C.L.O. 115, 121 (1985). 9 659 F. Supp. 606 (1987). 10 6 7 8 11 12 13 14 15 500 U.N.T.S. 95. 659 F. Supp. 606, 610, [1984] 2 A l l E.R. 6. [1983] 2 W.L.R. 750. 77 I.L.R. 513 (1988) . S. 11(1). 1 6 See Delaume, " J u d i c i a l Decisions Related to Sovereign Immunity and Transnational A r b i t r a t i o n " 2 ICSID Review 403, 418 (1987). 96 For a discussion of t h i s r ule, see L a l i v e , "Swiss Law and Practice i n Relation to Measures of Execution against the Property of a Foreign State" 10 Neth. Y. B. I n t ' l . L. 153 (1979). 1 8 23 I.L.R. 195 (1956). 1 9 Id. at 196-97. 2 0 20 I.L.M. 151 (1981). 2 1 Id. at 158. 2 2 Id. at 159. 2 4 Id. 2 5 See Libyan American O i l Coy v. Libya 482 F. Supp. 1175 (1980). The court followed the decision i n Ipitrade International S.A. v. Nigeria 465 F. Supp. 824 (1976)= I t should be noted that the court refused to enforce the award on the basis of the act of state doctrine. Pending appeal to the Court of Appeal of the D i s t r i c t of Columbia, the parties s e t t l e d out of court, and the court vacated the order of the D i s t r i c t Court. SECTION THREE THE INTERNATIONAL CENTRE FOR THE SETTLEMENT OF INVESTMENT •• DISPUTES 1. INTRODUCTION International investment i s widely recognized as a card i n a l f a c t o r i n the economic development of the developing parts of the world. I f properly u t i l i z e d , such investment would lead to the economic growth of the r e c i p i e n t countries« The substantial part of the investment which flows from the developed to the developing countries are of a private nature. Such privat e investment may be i n the nature of j o i n t ventures, management contracts, turn-key contracts, i n t e r n a t i o n a l leasing agreements or agreement f o r the transfer of know-how and technology. I n c i d e n t a l l y most foreign investors are apathetic to investing i n the developing countries f o r the fear of expropriation, government interference and breach of the investment contract by the host government. This fear was f o r t i f i e d by the f a c t that the e x i s t i n g dispute resolution machinery d i d not guarantee the private investor an e f f e c t i v e remedy against the state where the l a t e r i s i n breach of the investment contract. The r e s u l t was that pr i v a t e c a p i t a l was not moving i n s u f f i c i e n t volume to the developing countries. 98 The International Bank for Reconstruction and Development resolved that the obstacles to private investment could be dismantled by dislodging the unfavourable investment climate by the creation of an i n t e r n a t i o n a l machinery which would be a v a i l a b l e on a voluntary basis f o r the c o n c i l i a t i o n and a r b i t r a t i o n of investment disputes. The creation of such an i n t e r n a t i o n a l machinery would be a giant step toward promoting an atmosphere of mutual confidence and thus stimulating a larger flow of private c a p i t a l into those countries which wish to a t t r a c t i t . 1 By a r e s o l u t i o n adopted on September 10, 1964, the bank mandated i t s Executive Directors to "formulate a Convention es t a b l i s h i n g f a c i l i t i e s and procedures which would be a v a i l a b l e on a voluntary basis f o r the settlement of investment disputes between contracting states and nationals of other contracting states through c o n c i l i a t i o n and a r b i t r a t i o n " . 2 The Executive Directors formulated a Convention on the Settlement of Investment Disputes between States and Nationals of Other States. 3 The Convention came into force on October 14, 1966. This i s the only Convention s p e c i f i c a l l y dealing with issues a r i s i n g from a r b i t r a t i o n between a priv a t e party and a sovereign state. As of June 30, 1988, there were 89 Contracting States and a further 8 signatories of the Convention which had not yet r a t i f i e d the Convention. The Convention establishes the International Centre f o r Settlement of Investment Disputes as an autonomous international i n s t i t u t i o n . The purpose of the Centre i s to provide 99 f a c i l i t i e s f o r c o n c i l i a t i o n and a r b i t r a t i o n of investment disputes. 4 The ultimate objective of the Centre i s to d e p o l i t i c i z e investment disputes and to promote the flow of investments contributing to economic development. 5 2. JURISDICTION OF THE CENTRE Three conditions must e x i s t before the ICSID machinery can be a v a i l a b l e i n any proceeding: 1) the dispute must be between a Contracting State (or sub d i v i s i o n or agency designated by a Contracting State) and a national of another contracting state. , 2) the p a r t i e s must have consented i n w r i t i n g to submit the dispute to ICSID. 3) the dispute must be a l e g a l dispute a r i s i n g from an investment. 6 Consent i s the cornerstone of the j u r i s d i c t i o n of the Centre. Consent r e s u l t s e i t h e r from an a r b i t r a t i o n clause or from an agreement to submit to ICSID an e x i s t i n g dispute. Such consent must be i n writing and once given cannot be withdrawn u n i l a t e r a l l y . 7 To ensure the r e c i p r o c a l performance of obligations a r i s i n g out of the a p p l i c a t i o n of the Convention, the f a c i l i t i e s of the Centre i s a v a i l a b l e only i n disputes between a Contracting State and a national of another contracting s t a t e . 8 The Centre can therefore not entertain any dispute involving a non-Contracting State or a national of such a s t a t e . 9 I t should be noted that a j u r i d i c a l person which has 100 the n a t i o n a l i t y of the state party to the dispute would be e l i g i b l e to be a party to the proceedings i f the State had agreed to t r e a t i t as a national of another Contracting State because of foreign c o n t r o l . 1 0 This provision i s intended to take into account the s i t u a t i o n where a host government i n s i s t s that foreign investors channel t h e i r investment through a l o c a l l y incorporated company. 1 1 Holiday Inns v. Morocco 1 2 involved a claim f i l e d against Morocco by a Swiss company and a U.S. corporation on t h e i r own behalf and on behalf of t h e i r subsidiary incorporated i n Morocco. The t r i b u n a l declined j u r i s d i c t i o n as i t concerned the l o c a l subsidiary because there was no e x p l i c i t agreement by Morocco to t r e a t i t as being under foreign control within the meaning of the ICSID Convention. The dispute must also be of a l e g a l nature before i t comes within the j u r i s d i c t i o n of the Centre. The dispute must concern the existence or scope of a l e g a l r i g h t or obligation, or the nature or extent of the reparation to be made for the breach of l e g a l o b l i g a t i o n . The Centre can handle only those disputes which r a i s e questions of law as opposed to those which concern c o n f l i c t of i n t e r e s t s . F i n a l l y , the dispute must r e l a t e to an investment. Nowhere i n the Convention i s the term investment defined„ Several reasons account f o r t h i s f a c t . I t was d i f f i c u l t to fashion out a s a t i s f a c t o r y d e f i n i t i o n of the term. I t was feared that any d e f i n i t i o n tendered may be too narrow to contemplate the possible changes i n the nature of investments which may be occasioned by the passage of time. This lack of 101 d e f i n i t i o n has enabled the Convention to accommodate both t r a d i t i o n a l types of investment i n form of c a p i t a l contributions, j o i n t ventures, as well as modern kinds of investment r e s u l t i n g from new forms of association between states and foreign investors, such as p r o f i t - s h a r i n g and management c o n t r a c t s . 1 3 There was the further danger that a d e f i n i t i o n might provide a reluctant party with an opportunity to f r u s t r a t e or delay the proceedings by questioning whether the dispute was encompassed by the d e f i n i t i o n . 1 4 Since consent was cardinal to the j u r i s d i c t i o n of the Centre, i t was f e l t that the p a r t i e s should be l e f t to characterize the nature of t h e i r contract. 3. ICSID AND JURISDICTIONAL IMMUNITY The municipal court system usually acts as a support mechanism f o r the conduct of a r b i t r a t i o n proceedings. The effectiveness of the a r b i t r a t i o n process i s guaranteed by the assistance of municipal courts. The UNCITRAL Model Law recognizes t h i s f a c t by c a l l i n g upon each state adopting the Model Law to entrust a p a r t i c u l a r 'court' with the performance of c e r t a i n functions of a r b i t r a t i o n assistance and supervision, r e l a t i n g to appointment of a r b i t r a t o r s ( A r t i c l e 11), decision i n termination of a r b i t r a t o r ' s mandate ( A r t i c l e s 13 & 14), control of a r b i t r a l t r i b u n a l ' s j u r i s d i c t i o n ( A r t i c l e 16), and s e t t i n g aside of award ( A r t i c l e 34). Under the ICSID regime, however, consent to a r b i t r a t i o n i s exclusive of a l l other types of remedies. ICSID a r b i t r a t i o n 102 i s to a considerable extent freed from contacts with the municipal court system. I f a dispute subject to an ICSID a r b i t r a t i o n clause i s brought before a municipal court whose country i s a signatory to the ICSID Convention, such a court must decline j u r i s d i c t i o n . This flows from the provisions of A r t i c l e 26 of the Convention: "Consent of the p a r t i e s to a r b i t r a t i o n under t h i s Convention s h a l l , unless otherwise stated, be deemed consent to such a r b i t r a t i o n to the exclusion of any other remedy." 1 5 The p r a c t i c a l implication of the A r t i c l e i s that the ICSID machinery i s self-contained. Once part i e s consent to an ICSID a r b i t r a t i o n they must, unless a contrary intention i s evident, content themselves with the remedies and procedures adopted under the Convention. Absent a contrary intention, no municipal court of a Contracting State can intervene i n r e l a t i o n to appointment of a r b i t r a t o r s , regulation of the t r i b u n a l ' s j u r i s d i c t i o n or i n s e t t i n g aside of an ICSID award. The Convention contains in-house procedure f o r appointment of a r b i t r a t o r s ( A r t i c l e s 37-40), regulation of the t r i b u n a l ' s j u r i s d i c t i o n ( A r t i c l e s 36 & 41), and r e v i s i o n and annulment of awards ( A r t i c l e s 51 & 52). I t should be noted that A r t i c l e 26 i s a r u l e of i n t e r p r e t a t i o n rather than of substance. The section leaves a party free to s t i p u l a t e that i t reserves the r i g h t to have recourse to courts of law notwithstanding the ICSID a r b i t r a t i o n clause. A r t i c l e 26 only applies i n the absence of any express s t i p u l a t i o n to the contrary. I t i s c l e a r from the above discussion that absent a contrary intention by the Contracting Parties, no municipal 103 court can intervene i n an ICSID proceeding, at l e a s t u n t i l the recognition and enforcement stage. Therefore, the issue whether consent to ICSID proceeding constitutes waiver of j u r i s d i c t i o n a l immunity before municipal courts may not arise u n t i l the recognition and enforcement stage. In MINE v. Guinea 1 6 the pa r t i e s entered into a contract fo r the establishment and provision of shipping services to transport Guinean bauxite to foreign markets. By a l a t e r agreement they expressly agreed to submit any dispute a r i s i n g between them to ICSID a r b i t r a t i o n . What took place next i s disputed. By Guinea's account, MINE agreed to f i l e a formal a r b i t r a t i o n request with ICSID. MINE took no such step, rather three years l a t e r , i t petitioned the U.S. Court f o r the D i s t r i c t of Columbia to compel a r b i t r a t i o n under section 4 of the Federal A r b i t r a t i o n Act (FAA), asserting j u r i s d i c t i o n under both the FAA and the Foreign Sovereign Immunities Act (FSIA). Guinea declined to attend the proceedings and the court ordered a r b i t r a t i o n before the American A r b i t r a t i o n Association (AAA). Guinea d i d not appear before the a r b i t r a t o r s who rendered an award i n favour of MINE. On an app l i c a t i o n by MINE to the D i s t r i c t Court to confirm and enter judgment on the award, Guinea contended that the court's e a r l i e r order to compel a r b i t r a t i o n rested on an incorrect premise because ICSID a r b i t r a t i o n had indeed been ava i l a b l e . The court confirmed the award and entered judgment on the ground, i n t e r a l i a , that by agreeing to ICSID a r b i t r a t i o n , Guinea had impliedly agreed to submit to a r b i t r a t i o n i n the United States, since ICSID 104 headquarters are located In the U.S., and that consent to a r b i t r a t i o n i n the United States constituted a waiver of Guinea's immunity from s u i t under S. 1605(a)(1) of the FSIA. The court ignored the fac t that by v i r t u e of S. 1604 of the FSIA, the Act applies "subject to e x i s t i n g i nternational agreements to which the United States i s a party". One such agreement i s the ICSID Convention under which consent to ICSID a r b i t r a t i o n i s exclusive of any other remedy. The court ought to have r e l i e d on A r t i c l e 26 of the Convention not only to refuse to order the i n i t i a l AAA a r b i t r a t i o n , but also i n refusing to confirm the subsequent award. MINE breached the ICSID a r b i t r a t i o n agreement by a r b i t r a t i n g under the auspices of the AAA. The D i s t r i c t Court should have affirmed U.S. treaty obligations by using A r t i c l e 26 of the ICSID Convention to s t r i k e down the award. As indicated above, where there i s an ICSID a r b i t r a t i o n agreement, the issue of sovereign immunity before municipal courts does not a r i s e u n t i l the recognition and enforcement stage, unless the pa r t i e s agree otherwise. On appeal to the Court of Appeal of the D i s t r i c t of Columbia, the lower court's decision was reversed on the ground that Guinea had not waived i t s immunity from s u i t i n the context of the FSIA: "A key reason why pre-FSIA cases found that an agreement to a r b i t r a t e i n the United States waived immunity from s u i t was that such agreement could only be e f f e c t i v e i f deemed to contemplate a r o l e f o r United States courts i n compelling a r b i t r a t i o n that s t a l l e d along the way ... As t h i s p a r t i c u l a r ICSID agreement concededly d i d not foresee such a ro l e f o r United States Courts, we hold that i t did 105 not waive Guinea's sovereign immunity even though the agreed-to a r b i t r a t i o n would probably take place on United States s o i l . " 1 7 A better approach would have been to decide the case based on the exclusive character of ICSID a r b i t r a t i o n . This would have been consistent with the treaty obligations, of the U.S. More importantly, since the FSIA applies subject to e x i s t i n g i n t e r n a t i o n a l agreements to which the U.S. i s a •I Q p a r t y A O , i t was incumbent on the court to enforce the r u l e of abstention contained i n A r t i c l e 26 of the ICSID Convention. The only stage at which the issue of sovereign immunity and ICSID a r b i t r a t i o n can a r i s e i s at the recognition and enforcement stage, or i n s i t u a t i o n s where, pursuant to A r t i c l e 26, the p a r t i e s agree that t h e i r consent to ICSID a r b i t r a t i o n does not preclude them from remedies obtainable i n domestic courts. Where an issue r e l a t i n g to an ICSID a r b i t r a t i o n i s properly before a municipal court, can the state party plead j u r i s d i c t i o n a l immunity? A r t i c l e 54 obligates states to recognize an award rendered pursuant to the Convention as binding and enforce the pecuniary obligations imposed by that award within i t s t e r r i t o r i e s as i f i t were a f i n a l judgment of a court i n that state. Each Contracting State i s thus obliged to assimilate an ICSID award to the status of a f i n a l judgment of i t s l o c a l court. This implies that every state party to an ICSID a r b i t r a t i o n must contemplate the involvement of fellow Contracting States i n enforcing any attendant award. When such an award i s sought to be enforced against a state party, i t can not therefore be heard to plead j u r i s d i c t i o n a l immunity. 1 0 6 In L i b e r i a Eastern Timber Corp. v. L i b e r i a 1 9 . .Liberia challenged the j u r i s d i c t i o n of U.S. courts to enforce an ICSID award on the ground that the FSIA deprived the court of j u r i s d i c t i o n because L i b e r i a had not waived i t s sovereign immunity by entering into an ICSID a r b i t r a t i o n agreement. The court held that since A r t i c l e 54 requires Contracting States to enforce ICSID awards, L i b e r i a c l e a r l y contemplated the involvement of the courts of any Contracting States, including the U.S. as a signatory to the Convention, i n enforcing the pecuniary obligations of the award. The court concluded that L i b e r i a waived i t s sovereign immunity before U.S. courts with respect to the enforcement of the ICSID a r b i t r a l award. Where the p a r t i e s e l e c t to pursue both ICSID and domestic remedies at the same time, the issue whether the state party can plead j u r i s d i c t i o n a l immunity with respect to the domestic remedies has to be determined i n accordance with the immunity rules i n the state concerned. 2 0 This i s because such domestic remedies are outside the scope of the ICSID Convention. Provisions of the convention are inapplicable i n determining the v a l i d i t y of pleas of j u r i s d i c t i o n a l immunity i n such circumstances. F i n a l l y , i t should be noted that a state party cannot plead j u r i s d i c t i o n a l immunity before an ICSID t r i b u n a l . A cardinal essence o the j u r i s d i c t i o n of the Centre i s the consent of the p a r t i e s . Absent such consent the t r i b u n a l cannot assume j u r i s d i c t i o n . 2 1 But once consent i s given none 2 2 of the p a r t i e s may u n i l a t e r a l l y withdraw i t s consent , neither can i t s t a l l the a r b i t r a t i o n proceedings by r e f u s a l to 107 p a r t i c i p a t e . Within the system" of the Convention, therefore, the issue of immunity from s u i t does not a r i s e once a state party has given i t s consent to a r b i t r a t i o n . Indeed, reference to j u r i s d i c t i o n a l immunity i s inappropriate i n proceedings before ICSID a r b i t r a t o r s because the concept was designed f o r a p p l i c a t i o n before municipal courts. J At no time was there ever an immunity granted to states from a r b i t r a l proceedings to which they had hitherto consented. 4. THE ICSID AND INTERIM MEASURES OF PROTECTION We have seen that the exclusive character of the competence of ICSID t r i b u n a l i s guaranteed by A r t i c l e 26 which provides that consent of the p a r t i e s to a r b i t r a t i o n under the Convention s h a l l , unless otherwise stated, be deemed consent to such a r b i t r a t i o n to the exclusion of any other remedy. The question whether t h i s e x c l u s i v i t y of ICSID j u r i s d i c t i o n r e l a t e s to interim measures of protection has been a subject of heated controversy. The provisions of the Convention dealing with interim measures does not indicate whether the t r i b u n a l has exclusive j u r i s d i c t i o n i n such matters. I t provides: "Except as the par t i e s otherwise agree, the t r i b u n a l may, i f i t considers that the circumstances so require, recommend any p r o v i s i o n a l measures which should be taken to preserve the respective r i g h t s of the p a r t i e s . " 2 4 One school of thought contends that the competence of an ICSID t r i b u n a l to grant interim measures i s both general and 108 exclusive. In other words, by consenting to ICSID a r b i t r a t i o n , the p a r t i e s waive t h e i r r i g h t to seek interim measures of protection, including attachment, i n domestic courts, whether before or a f t e r the i n s t i t u t i o n of ICSID proceedings. 2 5 For the proponents of the extensive theory, assistance from domestic courts may be sought only i n three cases: - I f the p a r t i e s so provide; - I f ICSID declines j u r i s d i c t i o n following a r e f u s a l by the Secretary-General to r e g i s t e r a request or when an ICSID t r i b u n a l holds that an issue i s not within i t s competence; and -when an award i s rendered, to .ensure that i t i s executed. 2 6 The second school of thought contends that the power of an ICSID t r i b u n a l to grant interim measures of protection i s by no means exclusive. The provisions of the Convention i n point, they contend, do not r e a l l y support the extensive theory. They i n t e r p r e t the word 'remedy* i n A r t i c l e 26 as meaning that no court can consider the merits of a case which i s subject to an ICSID a r b i t r a t i o n , but not that a municipal court may not a s s i s t an ICSID a r b i t r a t i o n . 2 7 In t h e i r view the provisions of A r t i c l e 26 has no bearing on interim measures of protection because the l e g i s l a t i v e h i s t o r y of the section d i s c l o s e s that i t s objective was to specify the scope and meaning of consent to ICSID a r b i t r a t i o n . No mention i s made of the subject of pr o v i s i o n a l measures. ° The preponderance of j u d i c i a l authority support the f i r s t school of thought. In A t l a n t i c T r i t o n Company Limited v. 109 Guinea 2 9 the Court of Appeal of Rennes, France, ruled that an ICSID t r i b u n a l had exclusive j u r i s d i c t i o n to grant interim measure: "The ICSID Rules specify that unless otherwise agreed by the p a r t i e s , consent to a r b i t r a t i o n by ICSID i s exclusive of other remedy, and therefore the p a r t i e s cannot apply to l o c a l administrative or j u d i c i a l a u t h o r i t i e s , t o obtain p r o v i s i o n a l measures, but must have recourse to the a r b i t r a l t r i b u n a l ... The t r i b u n a l has the general and exclusive power to r u l e not only on the merits of the dispute but also on a l l p r o v i s i o n a l measures." On further appeal to the Court of Cassation, i t was held that the text of A r t i c l e 26 d i d not intend to p r o h i b i t recourse to a judge to request conservatory measures designed to guaranty the execution of an anticipated award. The court held that the Convention does not preempt the power of municipal courts to order interim measures. This i s about the only j u d i c i a l decision known to the writer which favours a r e s t r i c t i v e i n t e r p r e t a t i o n of A r t i c l e 26. The a r b i t r a t i o n between MINE and Guinea l e d to an number of j u d i c i a l decisions on the i n t e r p r e t a t i o n of A r t i c l e 26. In May and June 1985, MINE i n i t i a t e d attachment proceeding against Guinea i n Belgian and Swiss courts. The basis f o r the attachments was an award rendered i n 1980 by the American A r b i t r a t i o n Association a f t e r a hearing i n which Guinea did not appear. The U.S. D i s t r i c t Court had ordered AAA a r b i t r a t i o n on MINE'S representation that Guinea had refused to consent to a r b i t r a t i o n proceedings under the ICSID. The same court l a t e r confirmed the award, but i t was reversed by U.S. Court of Appeal for the D i s t r i c t of Columbia on the ground that Guinea did not waive i t s j u r i s d i c t i o n a l n o immunity. 3 0 In May 1984, MINE i n i t i a t e d an a r b i t r a t i o n proceeding against Guinea with the ICSID. With regard to the attachment proceedings, the Belgian court held that i t had no j u r i s d i c t i o n over the dispute because the ICSID i s exclusively competent and excludes the intervention of municipal courts of a state which r a t i f i e d the Convention. 3 1 The Court of f i r s t Instance of the Canton of Geneva held that recourse to ICSID a r b i t r a t i o n constituted a renunciation of a l l other means of settlement. 3 2 On a subsequent request to the Surveillance Authority i n Geneva (a q u a s i - j u d i c i a l authority dealing, i n t e r a l i a , with attachments), i t was held that i n r e s o r t i n g to ICSID a r b i t r a t i o n proceeding, MINE waived i t s a b i l i t y to request interim measures of protection from municipal c o u r t s . 3 3 The disadvantage of the expansive i n t e r p r e t a t i o n of A r t i c l e 26 i s that i t may make the grant of interim measures merely i l l u s o r y . In si t u a t i o n s where such measures are sought urgently, i t may be d i f f i c u l t to convene the a r b i t r a t o r s who may be l i v i n g i n d i f f e r e n t countries. I t takes even more time f o r such awards to be enforced through a municipal court. The delay occasioned by these factors may enable the party against whom the measure i s sought to safeguard h i s assets from the attachment. The Administrative Council of the ICSID on September 26, 1984, amended the ICSID A r b i t r a t i o n Rules by adding a new Paragraph Five to Rule 36. I t provides that: I l l "Nothing i n t h i s Rule s h a l l prevent the p a r t i e s , provided that they have so s t i p u l a t e d i n the agreement recording t h e i r consent, from requesting any j u d i c i a l or other authority to order p r o v i s i o n a l measures, p r i o r to the i n s t i t u t i o n of the proceedings, or during the proceedings, f o r the preservation of t h e i r respective r i g h t s and i n t e r e s t s . " The implication of the new r u l e i s that, absent an express agreement on the j u r i s d i c t i o n of municipal courts to grant interim measures of protection, no municipal court can grant such remedy. Parties to an ICSID a r b i t r a t i o n are well advised to include a provision allowing each party to seek conservatory measures before municipal courts. The ICSID recommends the following Model Clause: "The consent to a r b i t r a t i o n recorded i n [the basic clause] s h a l l not preclude any party hereto from taking, or requesting any j u d i c i a l or other authority to order, any p r o v i s i o n a l or conservatory measure, including attachment, p r i o r to the i n s t i t u t i o n of the proceeding or during the proceeding, f o r the preservation of i t s r i g h t s and i n t e r e s t s . 1 1 3 4 5. ICSID AND STATE IMMUNITY FROM EXECUTION One of the primary objectives f o r s e t t i n g up the ICSID was to a f f o r d foreign private investors a r e l i a b l e means for s e t t l i n g investment disputes with host nations. I t was believed that the guarantee of functional means of dispute r e s o l u t i o n w i l l help promote the flow of c a p i t a l from the developed to the developing nations of the world. From a p r i v a t e investors viewpoint, the most s a t i s f a c t o r y dispute r e s o l u t i o n process must guarantee the r e a l i z a t i o n of an award obtained against the state party. Without t h i s guarantee the 112 hope f o r obtaining redress against a r e c a l c i t r a n t state party may be i l l u s o r y . The task before the drafters of the ICSID Convention was to balance the need f o r guarantee of enforcement of ICSID awards with the insistence of foreign states that domestic laws on state immunity should not be tampered with. How does the Convention r e a l i z e t h i s objective? I t makes a c l e a r d i s t i n c t i o n between the recognition and execution stages. A r t i c l e 54(1) empowers each Contracting State to recognize an award rendered pursuant to the Convention as binding and enforce the pecuniary obligations imposed by the award within i t s t e r r i t o r y as i f i t were a f i n a l judgment of a court i n that state. Thus the state party cannot r a i s e objection, whether based on sovereign immunity, nature of the award or public p o l i c y , to the recognition and enforcement of the award. In t h i s sense, an ICSID award i s more e a s i l y enforceable than an award sought to be enforced under the New York Convention. 3 5 \ The ICSID Convention t r e a t s the recognition stage as the ultimate phase of the a r b i t r a l process. D i f f e r e n t rules apply to the execution stage. Execution of an ICSID award i s governed by the laws concerning execution of judgment i n force 3 6 i n the state i n whose t e r r i t o r i e s such execution i s sought. Thus while A r t i c l e 54(1) establishes recognition and e n f o r c e a b i l i t y , A r t i c l e 54(3) deals with the execution stage. The d i s t i n c t i o n between the two stages i s c l e a r l y brought out i n Benvuti & Bonfanti v. Congo 3 7. The Court of f i r s t instance of Paris granted recognition and enforcement of an 113 ICSID award with a caveat that "no measure of execution, or even a conservatory measure, can be taken pursuant to the said award or any assets located i n France, without our p r i o r a u t h o r i z a t i o n " . 3 8 On appeal, i t was argued that the lower court mixed up the recognition and enforcement stage with the execution stage, which are separated by the ICSID Convention. The Court of Appeal stated: "But considering that the order granting recognition and enforcement to an a r b i t r a l award does not constitute a measure of execution but only a decision preceding possible measures of execution... the lower judge could not, therefore, without exceeding h i s authority, deal with the second step, that of execution, to which rel a t e s the question of the immunity from execution of foreign s t a t e s . " 3 9 In SEE v. Y u g o s l a v i a 4 0 , i t was held that an exequatur decision was only the necessary sequel of an award and was l i m i t e d to a confirmation of i t s v a l i d i t y . I t i n no way impugned on a states's immunity from execution. The d i s t i n c t i o n , i n the context of ICSID a r b i t r a t i o n , ensures that although a state cannot plead sovereign immunity at the recognition and enforcement stage, i t may r e l y on that plea at the execution stage i f such a plea i s a v a i l a b l e under the laws of the state where execution i s sought. I f a Contracting State admits immunity from execution i n other circumstances, A r t i c l e 55 allows the courts of that state to uphold that defense i n the case of enforcement of an ICSID award against a state. As indicated by the Report of the Executive Directors of the World Bank: 114 " A r t i c l e 54 requires Contracting States to equate an award rendered pursuant to the Convention with a f i n a l judgment of i t s own courts. I t does not require them to go beyond that and to undertake forced execution of awards rendered pursuant to. the Convention i n cases i n which f i n a l judgments could not be executed." 4 1 The ICSID Convention does not eliminate the question of immunity from execution. I t merely guarantees that ICSID awards can be recognized and enforced with r e l a t i v e ease. A priva t e investor who wishes to execute an award on the property of a state party must contend with the immunity rules applicable at the forum where he seeks the execution. The issue was considered i n Liberian Eastern Timber Corporation v. L i b e r i a 4 2 . The p l a i n t i f f got an award against L i b e r i a . The award was enforced and execution ordered on tonnage fees, r e g i s t r a t i o n fees and other taxes due the Li b e r i a n government i n the U.S. L i b e r i a prayed the court to vacate the judgment enforcing the award or, i n the a l t e r n a t i v e , the execution of that judgment on i t s property located i n the U.S. Both prayers were based on i t s \ immunity under the FSIA. The court denied the motion to vacate the judgment on the ground that by consenting to ICSID a r b i t r a t i o n , L i b e r i a invoked A r t i c l e 54 of the ICSID Convention which requires enforcement of such awards against Contracting S t a t e s . 4 3 The court granted the motion to vacate the execution on the tonnage and r e g i s t r a t i o n fees due to L i b e r i a because such assets were immune from execution under the FSIA. I t , however, stated that LETCO was not enjoined from iss u i n g execution "with respect to any properties which are used f o r commercial a c t i v i t i e s and that f a l l within one of the 115 exceptions delineated i n Section 1619 [of the F S I A ] " . 4 4 LETCO l a t e r attached several Liberian Embassy bank accounts i n s a t i s f a c t i o n of the award. On a p p l i c a t i o n by L i b e r i a , the U.S. D i s t r i c t Court f o r the D i s t r i c t of Columbia quashed the writs of attachment because the accounts enjoyed diplomatic immunity under the 1961 Vienna Convention on Diplomatic Relations, and no exception of the FSIA applied to deprive the accounts of t h e i r grant of sovereign immunity. 4 5 The above cases i l l u s t r a t e the f a c t that immunity rules applicable i n the place where execution i s sought may prevent a forced execution on the property of the state party. The d r a f t e r s of the ICSID Convention d i d not derogate from the rules of immunity from execution obtaining i n Contracting States because of the views expressed by government representatives, an overwhelming majority of whom were i n support of the retention of the r u l e s . 4 6 While c a p i t u l a t i n g to e x i s t i n g rules of immunity from execution, the Convention provides sanctions f o r defiance of ICSID awards. Where a dispute i s subject to ICSID a r b i t r a t i o n , no Contracting State can.give diplomatic protection or bring an i n t e r n a t i o n a l claim on behalf of i t s national i n respect of such a dispute. I f the state party to the dispute refuses to comply with the ICSID award, the r i g h t to diplomatic protection i s r e s t o r e d . 4 7 Furthermore, i f the non-compliance derives from a dispute as to the i n t e r p r e t a t i o n or application of the Convention, any of the p a r t i e s may r e f e r the matter to the International Court of J u s t i c e , unless an a l t e r n a t i v e method of settlement i s agreed upon. 4 8 116 Agreeably, these sanctions are l e s s e f f e c t i v e than f o r c i b l e execution against the state party. Although the objective of the Convention i s to guarantee an e f f e c t i v e remedy f o r claimants i n an investment dispute, governments were quite reluctant to r e l i n q u i s h t h e i r immunity from execution. This may not be such a t e r r i b l e short-coming as i t may seem on a f i r s t look. F i r s t , the Convention guarantees state p a r t i e s a f a i r hearing before independent a r b i t r a t o r s , without undue interference from the municipal court systems of other nations. This gives them confidence i n the fairness of any ensuing award. There i s then very l i t t l e motivation on t h e i r part not to comply with the awards. Indeed the l e v e l of voluntary compliance with ICSID awards on the part of state p a r t i e s i s quite encouraging. 4 9 Second, even i f a state party seeks to r e l y on i t s immunity from execution, i t w i l l r e a l i z e that the e f f i c a c y of that immunity has eroded considerably with the emergence of the r e s t r i c t i v e theory of immunity. In most countries (especially i n those f i n a n c i a l c a p i t a l s of the world where considerable assets of most states are located), commercial assets of states are l i a b l e to attachment i n s a t i s f a c t i o n of t h e i r d e b t s . 5 0 A successful claimant can always attach such commercial assets. The Convention i s l a r g e l y successful i n immuning ICSID a r b i t r a t i o n s from interference from municipal l e g a l systems. The r u l e of abstention ensures that a l l disputes subject to an ICSID a r b i t r a t i o n clause are handled under the Convention. I t i s also a modest improvement on the New York Convention because i t eliminates the grounds on which recognition and 117 enforcement of an award may be refused. Within the scheme of the ICSID Convention, once an award i s not annulled, there i s no ground f o r refusing to recognize and enforce the award, not even p u b l i c p o l i c y considerations. Although the non-derogation from rules of immunity from execution may impede f o r c i b l e execution on state property, the factors indicated above ensure that compliance with ICSID awards i s not as problematic as i t may appear on the surface. 118 FOOTNOTES 1 Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965 I.L.M. 524, 525. 2 Id. at 524. 3 17 UST 1270, TIAS No. 6090; 575 UNTS 159. 4 A r t i c l e 1(2). 5 Shihata, "Towards a Greater D e p o l i t i c i z a t i o n of Investment Disputes: The Role of ICSID and MIGA" 1 ICSID Review (1986) 1. 6 See A r t i c l e s 25-27. 7 A r t i c l e 25(1). 8 Id. 9 For a d e t a i l e d discussion on the j u r i s d i c t i o n of the Centre, see Amerasinghe, "The J u r i s d i c t i o n of the International Centre f o r the Settlement of Investment Disputes" 19 Indian J . I n t ' l L. (1979) 166. 1 0 A r t i c l e 25(2)(b). 1 1 Delaume, Transnational Contracts (1986) I I , XV, 18. 1 2 L a l i v e , "The F i r s t 'World Bank' A r b i t r a t i o n (Holiday Inns v. Morocco) - Some Legal Problems" 51 B r i t . Y. B. I n t ' l L. (1980) 123. \ 1 3 Delaume, Transnational Contracts (Law and P r a c t i c e ) , 353. 1 4 Comment by Broches i n Convention on the Settlement of Investment Disputes between States and Nationals of Other States, History of. the Convention (1968) Volume I I , 54. 1 5 The A r t i c l e further provides that a Contracting State may require the exhaustion of l o c a l administrative or j u d i c i a l remedies as a condition of i t s consent to a r b i t r a t i o n under the Convention. 1 6 693 F. 2d. 1094 (1982). 1 7 Id. at 1103. 1 8 S. 1604 of the FSIA. 1 9 650 F. Supp. 73 (1986). 119 0 0 See generally the discussion i n Chapter Four, Section One. 2 1 See A r t i c l e 25. 2 2 Id. 2 3 See note 20. 2 4 A r t i c l e 47. ~ . ' 2 5 Delaume, Transnational Contracts (1986) 11, XV, 48. 2 6 Marchais, "ICSID Tribunal and Prov i s i o n a l Measures -Introductory Note to Decisions of the Tribunal of Antwerp, and Geneva i n MINE v. Guinea" 1 ICSID Review (1986) 372, 378. , 2 7 van den Berg, "Some Recent Problems i n the Practic e of Enforcement under the New York and ICSID Conventions" 2 ICSID Review (1987) 439, 454. 2 8 See generally, History of the Convention, supra note 8. 2 9 26 I.L.M. (1986) 373. 3 0 693 F. 2d. 1094 (1982). 3 1 Guinea V. MINE 24 I.L.M. (1985) 1639. 3 2 XII Y. Comm. Arb. (1987) 514, 521. 3 3 26 I.L.M. (1987) 382. 3 4 Clause XVI, ICSID Model Clause, reprinted i n 9 Y. Comm. Arb. (1984) 173. 3 5 See A r t i c l e V of the New York Convention f o r the various grounds on which recognition and enforcement of a foreign a r b i t r a l award may be denied. These include public p o l i c y and excess of j u r i s d i c t i o n . 3 6 See A r t i c l e s 54(3) and 55 of the ICSID Convention. 3 7 20 I.L.M. (1981) 878. 3 8 Id. at 879. 3 9 Id. at 881. 4 0 98 Journal du Droit International (1971) 131. 4 1 Report of Executive Directors, supra note 1, at 530. 4 2 650 F. Supp. (1986) 73. 120 4 3 Id. at 76. 4 4 Id. at 78. 4 5 659 F. Supp. (1987) 606. 4 6 See Broches, "Awards Rendered Pursuant to . the ICSID c1nven?ion: Binding Force, F i n a l i t y Recognit! n Enforcement, Execution" 2 TCSID Review (1987) 287, 329 et seq. 4 7 A r t i c l e 27. 4 8 A r t i c l e 64. 4 9 Delaume, "ICSID A r b i t r a t i o n Proceedings: P r a c t i c a l Aspects" 5 Pace L. R. (1985) 563, 589. 5 0 see our discussion i n Section I I , Chapter Three. 121 CONCLUSION The p a r t i c i p a t i o n of states i n commercial a r b i t r a t i o n has witnessed a steady increase i n recent years. This i s the case both i n the context of ICSID and other i n s t i t u t i o n a l a r b i t r a t i o n s . States appear not only as defendants but also, i n some cases, as claimants. I t i s i n s t r u c t i v e to note that the issue of sovereign immunity, both as regards j u r i s d i c t i o n and execution, has arisen i n a s i g n i f i c a n t l y few number of cases. In most of the cases the state p a r t i e s a c t u a l l y p a r t i c i p a t e i n the a r b i t r a t i o n process and, where they loose, f u l f i l l t h e i r obligations under the award. Thus, the record of compliance by governments with in t e r n a t i o n a l a r b i t r a l awards i s very encouraging. Many reasons account f o r t h i s f a c t . F i r s t , the a r b i t r a t i o n process ensures that disputes between a state and a private party are s e t t l e d i n a f r i e n d l y and priva t e arena, with very minimal interference by the courts of another state. A r b i t r a t i o n i s conducted i n a climate of mutual t r u s t and good f a i t h . Both p a r t i e s play an active r o l e i n the a r b i t r a t i o n process and c o n f i d e n t i a l i t y of the proceedings i s guaranteed i f they so desire. This atmosphere within which a r b i t r a t i o n i s normally conducted o f f e r s no incentive f o r d i s t r u s t and consequent r e f u s a l to s a t i s f y an award. Again, states do not only appear as defendants but i n some cases as claimants or counter-claimants. This 122 demonstrates the l e v e l of confidence which most states have i n the a r b i t r a t i o n process. Should the state be unsuccessful i n the a r b i t r a t i o n , i t s active p a r t i c i p a t i o n i n the proceedings i s a contributory factor to i t s willingness to comply with the award. The i n t e r n a t i o n a l business sector i s a c l o s e l y k n i t one. No state can a f f o r d the stigma of being u n r e l i a b l e i n business a f f a i r s . Foreign investors w i l l be les s l i k e l y to do business with such a state. In t h i s era when most countries are wooing foreign p r i v a t e investors with sundry incentives, i t i s d i f f i c u l t to imagine that any state can a f f o r d to paint i t s e l f as an un r e l i a b l e business partner. There are s t i l l some elements of discrepancy i n state p r a c t i c e i n r e l a t i o n to the scope of waiver of immunity constituted i n an a r b i t r a t i o n agreement. While some states i n s i s t that such waiver extends to the execution stage, others view the the recognition stage as the ultimate phase of the a r b i t r a t i o n process. The p r a c t i c a l s i g n i f i c a n c e of t h i s difference i n approach i s very minimal. In both cases once an award against a state i s recognized by the courts of another state, the commercial assets of the state party are normally l i a b l e to measures of execution. The p o s i t i o n could be put beyond doubt i f the parties supplemented the a r b i t r a t i o n agreement with an express waiver of immunity. Much of the time and money expended i n l i t i g a t i n g the impact of sovereign immunity on the e f f i c a c y of the a r b i t r a t i o n process would be saved i f only the p a r t i e s could, at the time the a r b i t r a t i o n agreement i s drafted, make 123 provisions f o r the waiver of immunity both during the recognition, enforcement and execution stages i n those j u r i s d i c t i o n s where i t i s most l i k e l y that enforcement w i l l be sought. This i s normally the case i n lending operations. International loan agreements always contain detailed provisions dealing with waivers of immunity. Drafters of a r b i t r a t i o n agreements involving state p a r t i e s should emulate t h i s p r a c t i c e . The extension of the r e s t r i c t i v e doctrine of immunity to state immunity from execution ensures that only the non-commercial assets of states are protected. A p r i v a t e party can always attach the commercial assets of a state even where immunity from execution i s a v a i l a b l e (with the exception of those j u r i s d i c t i o n s , l i k e the Soviet Union, which has not embraced the r e s t r i c t i v e theory of immunity). As we have seen, the burden i s on the claimant to prove that p a r t i c u l a r state assets are used f o r commercial purposes. Where such assets are r e a l property, the burden may be e a s i l y discharged because the use of such property can be r e a d i l y ascertained. But where f i n a n c i a l assets are involved, the private party may f i n d i t exceedingly d i f f i c u l t to prove that they are being used f o r commercial purposes. A state may e a s i l y s h u f f l e i t s f i n a n c i a l assets i n such a manner as to cloud i t s commercial usage. The s o l u t i o n may l i e i n lowering the standard of proof required from the claimant. The p o s i t i o n of U.S. and French law that execution i s only permissible on the property used f o r the commercial a c t i v i t y upon which the claim i s based constitutes an 124 unnecessary interference with the enforcement of an award against a state. The e f f e c t of t h i s requirement i s that a private party cannot r e a l i z e an award i f the commercial assets of the state u t i l i z e d i n the underlying transaction i s no longer i n existence. I f a state uses a p a r t i c u l a r asset for commercial a c t i v i t i e s , there i s no j u s t i f i a b l e reasons why i t s f i n a n c i a l obligations should not be met from that fund i r r e s p e c t i v e of the connection between the funds and the transaction i n question. The best means of l i m i t i n g the impact of the immunity p r i n c i p l e on the a r b i t r a t i o n process i s by making express provisions i n the contract waiving, the state party's immunity. I t i s i l l - a d v i s e d f o r a private party to leave h i s f a i t h to l o c a l rules on immunity whose r a m i f i c a t i o n often vary from one country to another. One clause dealing with waiver of immunity may well be the difference between expensive l i t i g a t i o n and easy enforcement of an award. 125 BIBLIOGRAPHY 1. BOOKS G Aksen, & R.B. von Mehren, International A r b i t r a t i o n between Private Parties and Governments (Practicing Law I n s t i t u t e , 1982). K.H. 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Kahale, " A r b i t r a t i o n and Choice-of-Law Clauses as Waivers of J u r i s d i c t i o n a l Immunity" 14 N.Y.U.J. I n t ' l L. & Pol. (1981), 29. , "New L e g i s l a t i o n i n the United States F a c i l i t a t e s Enforcement of A r b i t r a l Agreements and Awards Against Foreign States" 6 J . I n t ' l Arb. v o l . 2, 57 (1989) . G. Kahale & M. Vega, "Immunity and J u r i s d i c t i o n : Towards a Uniform Law i n Actions against Foreign States" 18 Columbia J . Trans. L. (1979), 211. N. Krishnamurthi, "India" 11 Y. Comm. Arb. (1971), 31. F.A. Mann, "The State Immunity Act of 1976" 50 B r i t . Y. I n t ' l L. (1979), 43. B.P. Marchais, "ICSID Tribunal and Provisional Measures -Introductory Note to Decisions of the Tribunal of Antwerp and Geneva i n MINE and GUINEA" 1 ICSID Review (1986), 372. P.M. McGovan, " A r b i t r a t i o n CLauses as Waivers of Immunity from J u r i s d i c t i o n and Execution under the Foreign Sovereign Immunities Act of 1976" 5 N.Y. Sch. J . I n t ' l & Comp. L. (1984), 409. J . McLaughlin, " A r b i t r a t i o n and Developing Countries" 13 International Lawyer (1979), 211. H. Molot & M. Jewett, "The State Immunity Act of Canada 20 Canadian Y. I n t ' l L. (1982), 79. R.J. O p a r i l , "Waiver of Sovereign Immunity i n the United States and Great B r i t a i n by an A r b i t r a t i o n Agreement" 3 J . I n t ' l Arb. (1986), 61. C. Osakwe, "A Soviet Perspective on Foreign Sovereign Immunity: Law and Practice" 23 V i r g i n i a Jj. I n t ' l L. (1983), 13. W. Park, " A r b i t r a t i o n of International Contract Disputes" 39 Business Lawyer (1984), 1783. 129 A. Rothstein, "Recognition and Enforcing A r b i t r a l Agreements and Awards against Foreign States: The Mathias Amendments to the Foreign Sovereign Acts and T i t l e 9" 1 Emory J . I n t ' l Dispute Reso. (1986), 101. G. Triggs, "An International Convention on Sovereign Immunity? Some Problems i n App l i c a t i o n of the R e s t r i c t i v e Rule" 9 Monash U.L.R. (1982), 75. I.F. Schihata, "Towards a Greater D e p o l i t i c i z a t i o n of Investment Disputes: The Role of ICSID and MIGA" 1 ICSID Review (1986), 1. G. S u l l i v a n , " I m p l i c i t Waiver of Sovereign Immunity by Consent to A r b i t r a t i o n , T e r r i t o r i a l Scope and Procedural Limits", 18 Texas Int' 1 L.J. (1983), 329. A. Van den Berg, "Some Recent Problems i n the Practice of Enforcement under the New York and ICSID Conventions" 2 ICSID Review (1987), 439. 3. CASES Alcorn v. Republic of Colombia [1984] 2 A l l E.R. 6 A l f r e d Dunhill v. Republic of Cuba 15 I.L.M. 735 Amin Rasheed Shipping Corp. v. Kuwait Insurance Co. [1984] A.C. 50 Andros Compania Maritima v. Andrea & Cie 430 F. Supp. 88 (1977) Baccus S.R.L. v. Ser v i c i o del Trigo [1958] 1 Q.B. 438 Benvuti S Bonfant v. Congo 20 I.L.M. 878 (1981) B e r i z z i Bros v. The Steamship Peraso 271 U.S. 562 (1926) 130 Birch Shipping Cora, v. Embassy of Tanzania 507 F. S U D D . 311 (1980) Bodlev Head Ltd. v. Flegon [1972] 1 W.L.R. 680 Borqa v. Russian Trade Development 22 I.L.R. (1955) 235 Carol i n Power & Light coy, v. Uranex 451 F. Supp. 1044 (1977) Charron v. Montreal Trust Cov {1958] 15 D.L.R. (2d) 240 Chicago Bridge & Iron Co v. Islamic Republic of Iran 506 F. Supp. 981 (1980) Compania de Navigacion y Financiera Bosnia v. National Unity Marine Salvage Corp. 457 F. Supp. 1013 (1978) Compania Naviera Vascongado v. S.S. C r i s t i n a [1938] A.C. 485 Cooper v. A t e l i e r s de l a Matobecane S.A. 456 N .Y.S. (2d) 728 Dexter & Capenter v. K i n g l i g 43 F. (2d) 705 (1931) Duff Development Co v. Kelentan [1924] A.C. 797 F.R.P. of Yugoslavia v. Kafr El-Zayat Cotton Ltd. 18 I.L.R. (1951) 54 Guinea v. A t l a n t i c T r i t o n Company 26 I.L. 373 (1987) Haber v. The Queen of Portugal (1851) 17 Q.B. 171 Ipitrade International v. Nigeria 465 F. Supp. 1284 (1980) 1 3 1 _ I s l a m i c R e p u b l i c o f I r a n v . S o c i e t e E u r o d i f 7 7 I . L . R . 5 1 3 I . T . A . D . v . P o d a r B r o s 6 3 6 F . 2 d 7 5 ( 1 9 8 1 ) K a h a n v . P a k i s t a n F e d e r a t i o n [ 1 9 5 1 ] 2 K . B . 1 0 0 3 K e i f e r & K e i f e r v . R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n 3 0 6 U . S . 3 8 1 ( 1 9 3 9 ) K i n g d o m o f G r e e c e v . J u l i u s B a r 2 3 I . L . R . 1 9 5 K r o l v . B a n k o f I n d o n e s i a 2 6 I . L . R . ( 1 9 5 8 , 1 1 ) 1 8 0 L a r s o n v . D o m e s t i c a n d F o r e i g n C o m m e r c e C o r p . 3 3 7 U . S . 6 8 2 L E T C O v . G o v e r n m e n t o f L i b e r i a 6 5 9 F . S u p p . 6 0 6 L i b r e B a n k L t d . v . B a n c o N a t i o n a l d e C o s t a R i c a 6 7 6 F . 2 d 4 7 ( 1 9 8 2 ) L i b y a n a m e r i c a n O i l C o v . S o c i a l i s t P e o p l e s L i b y a n J a m a h i r y a 4 8 2 F . S u p p . 1 1 7 5 ( 1 9 8 0 ) M a r e v a C o m p a n i a N a v i e r a v . I n t e r n a t i o n a l B u l k c a r r i e r s [ 1 9 7 5 ] 2 L L . R . 5 0 9 M c C r e a r y T i r e & R u b b e r C o . v . C E A T 5 0 1 F . ( 2 d ) 1 0 3 2 ( 1 9 7 4 ) M i g h e l l v . S u l t a n o f J o h o r e [ 1 8 9 4 ] 1 Q . B . 1 4 9 M I N E v . G u i n e a 6 9 3 F . 2 d 1 0 9 4 ( 1 9 8 2 ) M o n t r e a l T r u s t C o v . S t r a n r o c k U r a n i u m M i n e s L t d . [ 1 9 6 6 ] 1 O . R . 2 5 8 O h n t r u p v . F i r e a r m s C e n t r e 5 1 6 F . S u p p . 1 2 8 1 132 P e t r o l S h i p p i n g C o r p . v . The K i n g d o m o f G r e e c e 360 F. 2d 103 (1966) P h i l l j p i n e A d m i r a l C a s e . The [ 1 9 7 6 ] 2 W.L.R. 214 P r i n s F r e d r i k . The (1820) 2 Dods. 451 R a c h i m t o o l a v . N i z a m o f H y d e r a b a d [1958] A.C. 379 R a s A l K a i m a h [ 1 9 8 7 ] 2 A l l E.R. 769 S c h o o n e r E x c h a n g e v . M c F a d d e n 7 C r a n c h 116 (1812) S e c u r i t y P a c i f i c N a t i o n a l B a n k v . G o v e r n m e n t o f I r a n 513 F. Supp. 864 (1981) S h e r k E n t e r p r i s e s A.G. V. S o c i e t e d e s C r a n d e s Maegues 4 Y. Comm. A r b . 286 (1979) S o u t h e r n P a c i f i c P r o p e r t i e s v . E g y p t 23 I.L.M. 1048 ( 1 9 8 4 ) ; 26 I.L.M. 1004 (1987) S & S M a c h i n e r y Co. v . M a s i n e x p o r t i m p o r t 706 F. 2 d 4 1 1 (1983) T r e n d t e x T r a d i n g C o r p . v . The C e n t r a l B a n k o f N i g e r i a [ 1 9 7 7 ] Q.B. 529 V e n n e v . P.R. o f Congo (1969) 5 D.L.R. (3d) 128 V e r l i n d e n v . C e n t r a l B a n k o f N i g e r i a 488 F. Supp. 1294 (1980) V i c t o r y T r a n s p o r t I n c . v . C o m i s a r i a G e n e r a l de A b a s t e c i m e t o s 336 F. (2d) 354 (1964) V i t a F o o d s I n c . v . Unus S h i p p i n g Co. L t d . [1939] A.C. 227 Y u g o s l a v i a v . SEE (1971) J . P u . D r . I n t ' l 131 .._ 133 4. AWARDS Alcoa Minerals of Jamaica Inc. v. Government of Jamaica ICSID Case ARB/74/2 Amco Asia et a l v. The Republic of Indonesia 23 I.L.M. 351 (1984) ICC case 1803 V Y. Comm. Arb. 179 (1980) ICC case 2321 1 Y. Comm. Arb. 133 (1976) LIAMCO v. Libva VI Y. Comm. Arb. 89 (1976) Pabalk T i c a r e t v. Norsolor IX Y. Comm. Arb. (1984) 109 Southern P a c i f i c Properties v. Egypt 22 I.L.M. 752 (1983) SPP (Middle East) Ltd. v. Arab Republic of Egypt 22 I.L.M. 752 (1983)
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UBC Theses and Dissertations
Sovereign immunity and transnational arbitration Chukwumerije, Okezie 1985
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