In the world of international arbitration, sovereign immunity can pose a significant challenge in enforcing an arbitration award against a foreign State. Sovereign immunity is a legal doctrine that protects countries from lawsuits and legal claims. Historically, this doctrine has been a defense mechanism used by many countries to avoid paying damages or judgments against them. However, in international arbitration, the doctrine of sovereign immunity is not as effective in protecting states from litigation. In this blog post, we will dive into the limitations of immunity defenses in enforcing international arbitration awards.
While sovereign immunity is a well-established concept in domestic law, it is not a universal principle in international arbitration. The use of arbitration as a dispute resolution mechanism is rooted in the idea of consent. In many cases, states agree to submit disputes to arbitration, and through this agreement, they are considered to have waived their immunity defenses. Once an award is issued, attempting to evade payment based on sovereign immunity in international arbitration is not always possible.
Limitations of Sovereign Immunity
One of the significant limitations on sovereign immunity defenses in international arbitration is the New York Convention. The Convention is an international treaty that governs the recognition and enforcement of international arbitration awards. One of its provisions requires courts to enforce arbitration awards without evaluating the underlying merits of the dispute. This means that a foreign State cannot argue that sovereign immunity prevents the enforcement of the award. The Convention adds an extra layer of enforceability for international arbitration and helps prevent States from using immunity defenses as a shield against enforcement. In short, it reduces the chances of a losing party in an international arbitration avoiding enforcement and escaping liability. This makes international arbitration a more attractive and secure option for businesses seeking to resolve disputes with foreign states.
In countries that have ratified the Convention, courts must recognize the award unless there is proof that: (1) The parties were not given proper notice of the arbitration proceedings or were not allowed to present their case; (2) The award is not enforceable under the laws of the country where it was made; (3) The composition of the arbitral tribunal was not in accordance with the agreement between the parties; or (4) The award has been set aside by a competent court.
New York Conventions Significance
In addition to the New York Convention, there are other examples of jurisprudence that limit the use of immunity defenses in international arbitration. One such example is the case of a Chinese Company v. Nigeria. In this case, A US court has rejected sovereign immunity defenses of Nigeria against the enforcement of an international arbitration award. It is important to note that Nigeria consented to Arbitration through the Bilateral Investment Treaty, ICSID convention and New York Convention. Overall, base on several judicial decisions, it is well founded that, despite the sovereign immunity doctrine’s historic use, it should not apply when a state’s commercial activities are involved or when the State has consented to arbitration and waived its protections. See Nigeria’s sovereign immunity defence fails in DC – Global Arbitration Review
Another example of international law’s impact on immunity defenses is the case of Immunities of States in respect of their Central Banks. State’s central bank is not entitled to absolute immunity from the jurisdiction of foreign courts. This shows that international law is evolving to limit the scope of sovereign immunity in some instances.
In conclusion, the limitations on sovereign immunity defenses in enforcing international arbitration awards are clear. The use of arbitration as a dispute resolution mechanism is rooted in the idea of consent, and in many cases, states agree to submit disputes to arbitration, thereby waiving their immunity defenses. The New York Convention, other examples of jurisprudence, and the evolving nature of international law further limit immunity defenses in international arbitration. While sovereign immunity may have been an effective defense mechanism in the past, it is not as powerful a tool for foreign States in international arbitration. As arbitration becomes a more prevalent method of dispute resolution, the limitations on immunity defenses will continue to be tested and expanded upon. To learn about our international litigation practice, please visit International Litigation Attorneys – Transnational Matters