Established under the ICSID Convention, ICSID operates independently of local legal systems, providing an autonomous legal framework for dispute resolution. Compliance with ICSID Awards refers to the obligation of parties to adhere to and satisfy the terms of an ICSID award, typically through payment of monetary damages, specific performance, or other remedies ordered by the ICSID tribunal. Ensuring compliance is, of course, fundamental to the effectiveness of the ICSID system, as it upholds the principle that ICSID awards are final and binding.
ICSID Statistics on Compliance with ICSID Awards
In June 2024, the ICSID published a paper on compliance with ICSID awards in relation to their recognition, enforcement and execution.
The ICSID Compliance Study focused on 253 ICSID Awards with pecuniary obligations rendered by 31 December 2021.[1] Out of these awards, 63% awarded damages or damages and costs and 37% awarded costs only. The ICSID Secretariat obtained data regarding compliance with 231 ICSID awards, including voluntary compliance, post-award settlement, and enforcement.[2] The study findings show a significant rate of voluntary compliance with ICSID awards.
Compliance with ICSID Awards Awarding Damages or Damages and Costs
ICSID analyzed 111 ICSID awards awarding damages or damages and costs.[3] The findings showed a staggering rate of 90% voluntary compliance and post-award settlement of ICSID Awards. In 3% of the cases, enforcement was unsuccessful:
Compliance with ICSID Awards Awarding Costs Only
ICSID also analyzed 41 ICSID awards awarding costs only and found 71% of cases where compliance was voluntary and 12% of cases where the enforcement pursued was successful. Only in 17% of cases did the enforcement remain unsuccessful:[4]
The Obligation to Comply with ICSID Awards
Article 53 of the ICSID Convention stipulates that an ICSID award “shall be binding on the parties [and each] party shall abide by and comply with the terms of the award”.
As underlined in the paper, an ICSID award “is the final decision disposing of the case, and there can only be one Award in an arbitration under the ICSID Convention. Any other ruling before the Award, such as a decision upholding jurisdiction (in whole or in part) or a decision on liability, is not considered an Award, although it forms part of the Award once it is incorporated into the final decision disposing of the case.”[5] Only awards are susceptible to enforcement, recognition, or execution pursuant to Articles 54 and 55 of the ICSID Convention.
Annulment, Recognition, Enforcement and Execution of ICSID Awards
Annulment, recognition and enforcement, and execution[6] of ICSID awards are essential legal concepts that determine the post-award consequences of ICSID awards. In general, these terms may be defined as follows:
- Annulment is a process allowing parties to request the cancellation of an award under specific and limited circumstances. Unlike an appeal, which reviews the substance or merits of the award, annulment is a special procedure focused on procedural or jurisdictional issues.
- Recognition involves a domestic court accepting an award as binding and conclusive, equivalent to a final judgment by that country’s courts.
- Enforcement involves the implementation of the award by compelling the losing party to comply with its terms.
- Execution is the final stage, involving the actual collection of the award, often through measures like garnishment, asset seizure, etc. It is usually governed by the laws of the country where it is sought.
The following paragraphs address the specificities of the ICSID system regarding each of these legal principles.
Annulment of ICSID Awards
Unlike many arbitration systems, ICSID’s framework is self-contained. This means that ICSID awards cannot be appealed before domestic courts. While non-ICSID awards may be subject to annulment procedures in conformity with the laws of the seat of the arbitration, ICSID awards may be annulled only by an ICSID ad hoc annulment committee and on very specific grounds figuring in the ICSID Convention itself. Its Article 52 provides that ICSID awards may be annulled for the following reasons only:
- the arbitral tribunal was not properly constituted;
- the arbitral tribunal manifestly exceeded its powers;
- there was corruption on the part of a member of the arbitral tribunal;
- there has been a serious departure from a fundamental rule of procedure; or
- the ICSID award has failed to state the reasons on which it is based.
Recognition and Enforcement of ICSID Awards
Pursuant to Article 54(1) of the ICSID Convention, “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.”
However, the ICSID Convention is silent on the grounds on which such recognition or enforcement can be refused. It merely requires that the party wishing to enforce or recognize the ICSID award provide a copy of the award certified by the ICSID General-Secretary to the competent domestic court or authority (Article 54(2) of the ICSID Convention).
This regime differs from the recognition and enforcement of non-ICSID awards governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Its Article V provides for several grounds on which the recognition or enforcement of a foreign award may be refused:
- a party to the arbitration agreement was under some incapacity;
- the arbitration agreement was invalid;
- the award dealt with an issue outside the scope of the parties’ submissions to arbitration;
- the composition of the arbitral tribunal or the procedure was not in accordance with the parties’ agreement, or absent such agreement, with the law of the seat of arbitration;
- the award is not yet binding;
- the award was annulled in the country where it was rendered;
- the subject matter of the dispute is not arbitrable under the law of the country in which the enforcement or recognition is sought; or
- the recognition or enforcement of the award would be contrary to the public policy of that country.
Several domestic courts have already underscored the difference between the New York Convention and the ICSID Convention. For instance, in the decision rendered in Union Fenosa v. Egypt, the English High Court restated the differences between the ICSID Convention and the New York Convention, holding that “it would be surprising if a more cumbersome procedure had to be followed for the registration of ICSID Awards under the 1996 Act, when compared to the procedure for New York Convention awards, in circumstances where the arguments available to the state (if they exist at all) are significantly more limited.”[7]
Execution of ICSID Awards
While the ICSID Convention mandates recognition and enforcement, it leaves execution to the laws of the enforcing jurisdiction. National courts may enforce ICSID awards similarly to final domestic judgments but are bound by local laws, including those on sovereign immunity.[8]
Conclusion
The findings of ICSID’s compliance and enforcement study affirm that the Convention’s structure effectively balances the interests of States and private investors. The high rate of voluntary compliance and successful enforcement, combined with the protections provided by member States, demonstrates ICSID’s strength in fostering a stable, predictable investment environment.
[1] Compliance with and Enforcement of ICSID Awards, ICSID Background Paper, June 2024, p. 4, para. 17.
[2] Compliance with and Enforcement of ICSID Awards, ICSID Background Paper, June 2024, p. 7, para. 25.
[3] Compliance with and Enforcement of ICSID Awards, ICSID Background Paper, June 2024, p. 8, para. 29.
[4] Compliance with and Enforcement of ICSID Awards, ICSID Background Paper, June 2024, p. 9, paras. 32-33.
[5] Compliance with and Enforcement of ICSID Awards, ICSID Background Paper, June 2024, p. 25.
[6] See also Recognition, Enforcement and Execution in International Arbitration, Aceris Law, 8 July 2024.
[7] Union Fenosa Gas, S.A. v Arab Republic of Egypt (Comm), Approved Judgement [68].
[8] Compliance with and Enforcement of ICSID Awards, ICSID Background Paper, June 2024, p. 9, paras. 138-167.