Enforcement of Investment Arbitration Award: Blurring the Notion of Consent
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Both the authors (Bhavya Kala and Jubin Malawat) are 3rd-year under graduates pursuing B.A. LL.B. (Hons.) at Rajiv Gandhi National University of Law, Punjab.
In this article, the authors uncover the underlying conundrum over the validity of the application of the concept of ‘reverse piercing of corporate veil’ while underpinning the touchstone principle of separate legal identity and relevance of consent as a foundational basis to arbitration. The authors endeavour to argue that consent forming the very epicentre of the arbitration as a dispute resolution mechanism cannot be side-stepped to hold an SOE accountable for a state's award debt. Perhaps of greater significance, this article notes that the paradox of an increasingly evanescent notion of consent as the foundational basis for arbitration has been the blurring of the boundaries of legal personality.
- Bhavya Kala, Co-Author
- Jubin Malawat, Co-Author
Introduction
One of the most revered advantages of the international dispute resolution through arbitration is the global enforcement mechanism facilitated by the international conventions like Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the Convention on the Enforcement and Recognition of Foreign Arbitral Awards 1958 (New York Convention). Unfortunately, it is a bitter truth that monetarily out-sized investment arbitrations initially take momentous time to finish off and the prosperous parties would then have to corroborate with challenges to the enforcement of the arbitral award. This places the award creditor seeking enforcement of an award in a difficult predicament
Typically, in an investment arbitration case if the debtor state refuses to voluntarily abide by or enforce the award by the mandated deadline, the award creditor becomes entitled to enforce the award against the assets of the debtor state. One such potential situation occurs when the size of the award rendered by a tribunal is significantly large. Since, the arbitration tribunal lacks the authority to enforce awards, the award creditor undertakes to enforce the claims against the assets of the debtor state placed in a foreign jurisdiction. However, this presents an uphill battle for the award creditor. The debtor state being a sovereign, the assets owned and controlled by it are protected against cross-border execution under the guise of sovereign immunity. In such cases, doctrine of jurisdictional as well as executional immunity, as identified under the customary private international law, hold well in favour of the reluctant debtor state.
Although an agreement to investment arbitration renders the debtor state to waive off its jurisdictional immunity, the courts around the globe have largely concluded that a debtor state still retains execution immunity over its sovereign assets in the foreign states. In such circumstances, the alternative route to execute the award against the assets owned by the non-party state-owned entities (SOEs) through the concept of “reverse piercing of the corporate veil” have gained significant traction. SOEs, in general, are the entities through which a state holds assets and engages in business transactions. In the recent past there have emerged multiple cases wherein the investor entities have moved against the assets owned by the SOEs. Cairn Energy Ltd. v. UOI and Devas v. Antrix Corporation are few such examples among others.
In light of the rising instances of execution of award against SOEs around the globe, this article in light of the doctrine of separate legal personality and the principle of consent in arbitration questions the validity of the principle of reverse piercing of corporate veil. To support the arguments presented, the authors also present an analysis of the contemporary enforcement mechanism put to use by the developed nations around the world while executing an award against the assets owned by the SOEs. The article is divided in three parts. The Chapter I unravels the concept of ‘reverse piercing of corporate veil’ and the principle of ‘alter ego’. The Chapter II presents an analysis of the domestic laws and the judicial precedents followed in the US, the UK and France in respect to enforcement of arbitral award against SOEs. And lastly, the Chapter III exhibits the paradox of an increasingly evanescent idea of consent and contractual privity in modern arbitrations.
