First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.
Successful claimants in investor-state arbitrations often face hurdles to actual recovery of their awards, and a recent US District Court decision may pose yet another hurdle involving the ability to enforce the interest due on awards. ICSID panels often provide for post-award interest, which are important given the potential for lengthy delays in collections if the award debtors refuse to pay. The benefit to patient claimants is supposed to be automatic recognition of their awards in the more than 160 countries that are ICSID members (including the US), creating a (relatively) straightforward path to judgment and execution to satisfy unpaid awards. But a recent decision from the US District Court for the District of Columbia now calls into question whether a claimant who seeks recognition of an award in the US risks losing the right to enforce the post-award interest granted by the ICSID tribunal and be left with the statutory post-judgment interest rate once an ICSID award is recognized as a US judgment.
In OI European Group BV v. Bolivarian Republic of Venezuela, No. 16-cv-1533 (D.D.C.), the court was faced with a fairly typical action to recognize an ICSID award (except for the unusual issue of who was the government: Maduro v. Guaidó). The award arose from the expropriation of claimant's glass factories by the Venezuelan government in 2010. Claimant commenced an ICSID arbitration in 2011, and an award was issued in March 2015 for the amount of $372,461,982 plus costs, expenses, and post-award interest (LIBOR plus 4%).
Venezuela applied for annulment, which consumed another year during which the award was provisionally stayed, though the ICSID tribunal eventually lifted the stay when it became clear that Venezuela was unlikely to comply. Claimant then brought suit in Washington, DC to confirm the award and lost another year attempting to serve process on Venezuela. Even then, after seven years of delay, claimant was forced to continue to wait when the court granted Venezuela's request for a stay pending a final decision on Venezuela's annulment application, which the tribunal denied in December 2018. In other words, the court determined to grant a stay even though the ICSID tribunal charged with presiding over the annulment application had already determined that a stay was no longer appropriate.
Delays continued in the spring of 2019 largely due to a dispute over whether the Guaidó government or the Maduro government was the proper representative of Venezuela’s interests. The court ultimately recognized the Guaidó government (following a DC Circuit decision on the issue), which did not object to recognition of the award but instead argued only that the post-judgment interest rate had to be set at the federal statutory rate for judgments (around 2.3%) instead of the higher award rate (LIBOR plus 4%).
The court agreed with the Guaidó government and entered judgment on the award but replaced the more favorable award rate of interest with the federal post-judgment interest rate dictated by 28 U.S.C. § 1961. Applying the "merger doctrine"—a doctrine holding that arbitral awards merge with the judgments that are entered by courts when confirming the awards—the court reasoned that the federal rate applied once judgment was entered on the award. The court found support in the language of the award, which provided for interest "until payment" without any explicit provision for post-judgment interest. In so doing, the court distinguished a 2015 decision from the Southern District of New York in Mobil Cerro Negro Ltd. v. Bolivarian Republic of Venezuela, which held that the award rate (not the federal rate) should continue to apply even after judgment has been entered on an ICSID award.
The DC court's decision is difficult to square with the text and underlying ICSID policy. When Congress passed the enabling legislation implementing the ICSID Convention in the US, it provided that ICSID awards are entitled to special treatment—i.e., "[t]he pecuniary obligations imposed by such an award shall be enforced and shall be given the same full faith and credit as if the award were a final judgment" of a state court. 22 U.S.C. § 1650a. Moreover, ICSID awards are not subject to the Federal Arbitration Act (FAA), which specifically "shall not apply to enforcement of [ICSID] awards." Id. It is difficult to see how interest is anything other than a pecuniary obligation—and therefore "shall be enforced" and "shall be entitled to full faith and credit." In turn, replacing a pecuniary obligation of an award with a different (and here, lesser) pecuniary obligation does not satisfy the text's requirements to "enforce" and provide full faith and credit.
The DC court did acknowledge its obligation to afford full faith and credit to the award, but it did not analyze the mandate of the enabling legislation, which explicitly commands that "[t]he pecuniary obligations imposed by such an award shall be enforced …." 22 U.S.C. § 1650a(a). The court manifestly did not enforce the interest obligation, instead analogizing to state court judgments where post-judgment interest is often set by state statute, which is trumped by federal law. By contrast, the interest provisions of ICSID awards typically are fully litigated by the parties and resolved by the tribunal, and Congress has commanded that the result "shall be enforced" by the federal courts.
While it may be tempting to look to analogous situations arising under the FAA for precedent when dealing with ICSID awards, this approach is at odds with the enabling statute in which Congress specifically exempted ICSID awards from the scope of the FAA. Reliance on the merger doctrine or other procedural rules of the FAA is, therefore, not appropriate. ICSID awards—unlike other types of arbitral awards—are to be treated as separate judgments entitled to full faith and credit in US courts.
Additional caution should be used when examining the damages language used by ICSID tribunals when issuing awards. The DC court put great emphasis on the language providing for interest "until payment"—though the ongoing litigation indicated the award had not been paid, and thus, it was perhaps the award's failure to explicitly provide for "post-judgment" interest that the court found most instructive. Regardless, practitioners who represent investors in ICSID proceedings may wish to consider more robust language in their requests for relief, including language that clearly provides for interest as a pecuniary obligation that is not to be supplanted by local law and that accrues until the award (or a judgment entered thereon) is satisfied.
US jurisprudence regarding the enforcement of ICSID awards is relatively undeveloped. Thus, the question of interest remains open and unresolved—as do many other questions—notwithstanding the DC court's decision. Nevertheless, seeking initial recognition of ICSID awards in the US is becoming less attractive in light of this decision and the 2017 appellate decision in the Mobil Cerro Negro case, in which the Second Circuit Court of Appeals refused to permit expedited recognition procedures (though did not reach the interest issue). 863 F.3d 96 (2d. Cir. 2017). The uncertainty surrounding whether US courts are truly willing to enforce the pecuniary obligations of ICSID awards should be cause for reflection, and successful claimants should consider whether there are realistic enforcement goals to pursue in the US before seeking recognition here.