Too Big to Nail: How Investor-State Arbitration Lacks an Appropriate Execution Mechanism for the Largest Awards

INTRODUCTIONInternational arbitration has become a key dispute-resolution mechanism for cross-border transactions, particularly international investment.1 In fact, for most investors, an investment-arbitration provision-found in bilateral investment treaties (BITs) between states, the national investment laws of states, or in specific investor-state agreements-is a requirement for any international investment operation.2 These investment-arbitration provisions allow private parties that have invested in a host state to bring a claim directly against that state in an investment-arbitration tribunal.3 Proponents of investment arbitration argue that it provides a relatively efficient, neutral forum; fosters flexibility in complex, multiparty disputes; and allows for confidential, non-public hearings and decisions.4 States agree to these investor-friendly attributes to encourage investment in their countries, particularly those that might not otherwise be able to attract sufficient capital due to the inherent risks associated with establishing an investment in a foreign jurisdiction.5 With the increased use of investment-arbitration provisions, disputes using investment arbitration as a resolution mechanism have soared, with more than 490 investment disputes registered with the International Centre for Settlement of Investment Disputes (ICSID) since 1990.6As investment arbitration has proliferated and become mainstay for international investment agreements, commentators have taken a keen eye in analyzing its impact and pointing out its weaknesses.7 These critiques include a potential bias given to foreign investors, opaque rulemaking, weak legal standards, and severely limited appellate review.8 Some national governments party to investment-arbitration disputes have argued that these problems weaken state sovereignty by creating significant financial and legal burdens.9 Concerns over these issues have prompted some states to limit their exposure to investment arbitration.10 In some cases, states have waived investment-arbitration provisions or completely walked away from previously agreed investment treaties that include investment arbitration.11Recent cases have exposed a significant and increasingly problematic shortcoming that gives investors further reason to question the effectiveness of investment arbitration: if a state refuses to pay an award rendered against it by an arbitral tribunal, the claimant faces an uphill battle of executing the award by seizing the state's assets.12 Although a state has waived its jurisdictional immunity by agreeing to investment arbitration, courts have largely concluded that a state still retains immunity over its sovereign assets.13 The treaties that govern investment arbitration and most national sovereign-immunity laws do not extend the waiver of jurisdictional immunity to the execution of awards.14 For reasons that will be subsequently explained, this prevents claimants from seizing most assets that are owned and controlled by a state, leaving the claimant scrounging multiple jurisdictions for attachable assets.15 These efforts re- quire additional legal and financial obligations by the claimant, which might be too costly and time consuming for a claimant to endure.16 Consequently, the problems of executing an award directly call into question the overall effectiveness of investment arbitration, as a party to a dispute is not likely to engage in litigation if the defendant will eventually prevent the execution of the award.17 After all, what good is an award that can never be collected?18Fortunately for investors, the problems of execution immunity have only rarely surfaced because states by and large comply with awards rendered against them.19 Although states are usually mandated by their investment agreements to abide by an award, they ultimately comply and pay the award because they fear that refusing to do so will hurt their future investment endeavors. 20 First, most states do not want to scare offfuture investment. …