State liability for the unlawful failure of enforcement of arbitral awards has been subject to a number of claims over the past few years. Despite the Saipem v. Bangladesh award in 2009 declaring the de facto deprivation of the benefits of an ICC award an unlawful expropriation of an investment, tribunals subsequently dealing with this issue in similar cases, including GEA Group Aktiengesellschaft v. Ukraine in 2011, appear to be more reluctant towards holding a state liable for the failure of its courts to enforce an arbitral award.
The first case where investment treaty tribunals dealt with the issue of state liability for the unlawful failure of enforcement of arbitral awards is the case Saipem v. Bangladesh. The decision rendered in Saipem v. Bangladesh is somewhat unique in that the Italy-Bangladesh BIT applicable to that case did not explicitly entitle investors to claim a breach of the fair and equitable treatment obligation, which is the most important standard in the protection of foreign investments. Consequently, the Italian company Saipem alleged a breach of the expropriation clause. While the ICSID tribunal specifically held that not any deprivation of the ability to enjoy the benefits of an arbitral award would be tantamount to an expropriation, it decided that the non-enforcement of the ICC award was in fact expropriatory due to the particularly egregious nature of the acts of the Bangladeshi courts.
Significantly deviating from this highly controversial view, the tribunal in GEA Group Aktiengesellschaft v. Ukraine found that there was no breach of the applicable Germany-Ukraine BIT in respect of the non-recognition and enforcement of an ICC award by Ukrainian domestic courts. It held that the award "in and of itself" could not constitute an investment according to the criteria set forth in the BIT or in Article 25 of the ICSID Convention accordingly. Moreover, the tribunal dealt with the alleged denial of justice and refused to act as an international appellate body to review the "judicial propriety of the outcome". The tribunal in GEA Group Aktiengesellschaft v. Ukraine concluded that, even if the ICC award would have been considered an investment, there was no violation of the fair and equitable treatment principle.
Two aspects are frequently raised in the context of arbitral tribunals reviewing claims based upon the non-recognition or enforcement of an arbitral award: First, decisions like Saipem may promote numerous claims for expropriation in connection with the setting aside of an award, even if the setting aside proceedings were ordered and conducted by competent state courts upon legitimate grounds. Second, a tribunal's reluctance to decide upon such a matter could also be explained by the perception that arbitral tribunals should not act as an international appellate body assessing the legality of a state's domestic court decisions.
Thus, it remains to be seen whether tribunals will follow a rather cautious approach or whether they will go a more investor-friendly way by affirming a state's responsibility in respect of a national court's unlawful failure to enforce an arbitral award. Overall, the reasoning in the Saipem decision led to confusion, which is why – in the latter case – the considerations of future tribunals should particularly focus on the deficiencies of the Saipem award in order to avoid further ambiguity.