International arbitration is an increasingly popular way to settle disputes between parties of different nationalities and a particularly valuable tool for private parties engaging in commercial transactions with states. The reasons for preferring arbitration include the ability to choose the dispute settlement forum, the procedural strictures of judicial settlement, and the perceived tendency of national courts to favor their own investors. Whatever their reasons for choosing arbitration, parties who do so believe that the current network of multilateral treaties and national laws render the awards arising out of arbitration enforceable and executable in multiple jurisdictions. This potential for enforcement in multiple jurisdictions is valuable because it allows the prevailing party to collect on its award and, when it cannot, to bring judicial pressure to bear in order to compel compensation. It is the promise of such transportable execution which may be arbitration’s greatest appeal. However, this Note argues that this perception may be fatally flawed. When losing state parties do resist award enforcement, the domestic law of sovereign immunity provides a near-absolute bar to attempts to enforce and execute those awards against the states.
Enforcement of arbitral awards by national courts is central to the international arbitration regime’s protections. However, there remains an important loophole in the provisions for execution of arbitral awards, even those that are enforceable: Claims of sovereign immunity. While the past decades have seen a shift in the doctrine of sovereign immunity from absolute to restrictive, claims of sovereign immunity remain available to states brought before the courts of another state. The protection provided by the arbitration agreement is rendered illusory if the state against which execution is sought can defend against enforcement of the award through claims of sovereign immunity. The investor, having prevailed in arbitration, will be left with an award that cannot be satisfied.
This Note begins by examining the law that governs the enforcement and execution of international arbitration awards and the domestic law of sovereign immunity in Part II. In Part III, case studies from a number of jurisdictions are presented in order to demonstrate the problems that investors face when a state claims sovereign immunity to avoid paying an award. Part IV then explores the regime of Bilateral Investment Treaties (BITs), a rapidly expanding practice by which states form sovereign agreements that permit their national investors to bring disputes against the signatory sovereign in arbitration. For reasons that this Note examines, concerns about sovereign immunity may be particularly problematic in the BIT context. The BIT context is thus a lens through which the costs to both states and the international trade regime that arise from refusals to enforce such awards become apparent. Part VI examines a number of ways that the problems with sovereign immunity might be mitigated.