Case Law Chronicle: Sovereign Immunity Is No Defense to the Recognition of ICSID Award Against Venezuela; New York Court Stays Recognition on Basis of ICSID Internal Proceedings

March 20, 2015

This is the second installment in a regular series offered by NYIAC’s Executive Director, Alexandra Dosman. Follow this series to learn about recent decisions by New York federal and state courts and for easy access to the full text of the decisions.

Below, read more about Mobil Cerro Negro Ltd., et al. v. Bolivarian Republic of Venezuela, Case No. 14 Civ. 8163 (February 13, 2015), in which the the Southern District of New York upheld a simple, mechanistic procedure for registering an ICSID award against a sovereign state, despite arguments based on sovereign immunity. The recognition of the award has been stayed pending resolution of Venezuela’s application to ICSID to review the award. NYIAC has also learned that on February 9, 2015, Venezuela applied to ICSID to annul the award; the ICSID Secretariat is in the process of constituting an ad hoc committee for the annulment proceedings

Sovereign Immunity Is No Defense to the Recognition of ICSID Award Against Venezuela; New York Court Stays Recognition on Basis of ICSID Internal Proceedings

In Mobil Cerro Negro Ltd., et al. v. Bolivarian Republic of Venezuela, Case No. 14 Civ. 8163 (February 13, 2015), the Southern District of New York addressed an issue of first impression in the district: do statutory protections afforded to sovereign states require a “plenary action” in proceedings to recognize international arbitral awards issued under the ICSID Convention, or may a simplified procedure be followed?  In a 50-page decision, Judge Paul A. Engelmayer provided a clear answer: the procedures applicable to the recognition process are simplified and “automatic,” even as against sovereign states. The Court denied Venezuela’s bid to vacate an ex parte order recognizing a USD 1.6 billion ICSID award against it (but stayed the recognition pending further proceedings within ICSID). The case is instructive on several points.

ICSID Awards Become Federal Court Judgments in “Automatic” Process Under New York State Law

This case involved an ICSID award rendered against Venezuela in October 2014. Venezuela declined to pay the award, and the award creditors, ExxonMobil entities (“Mobil”), submitted an ex parte petition to recognize the award in federal court in Manhattan as a precursor to enforcement against the award debtor’s assets. To obtain recognition, Mobil invoked the United States statute enabling the ICSID Convention, which provides that pecuniary obligations imposed by an ICSID award “shall be enforced and shall be given the same full faith and credit as if the award were a final judgment of a court of general jurisdiction of one of the several States.” 22 U.S.C. § 1650a(a). The enabling statute does not, however, stipulate a process for how that enforcement is to take place.

In order to fill what Judge Engelmayer observed was a “statutory gap,” Mobil followed the process set out in New York state law for the recognition of foreign judgments entitled to full faith and credit, typically judgments of other United States courts.[1] The procedure is streamlined and involves no substantive review by the court: such a judgment may be registered in an ex parte proceeding, as long as the debtor is notified within thirty days. Mobil petitioned (ex parte) to have the ICSID award registered and converted into a judgment of the federal court. The petition was granted on October 10, 2014, the same day it was filed.

Sovereign Immunity Provides No Defense to Recognition—but Execution is Another Story

Venezuela argued that the order should be vacated because the Foreign Sovereign Immunities Act (“FSIA”) provides exclusive rules for subject matter jurisdiction, service of process, personal jurisdiction, and venue in cases against sovereigns.

As to subject matter jurisdiction, the Court noted that the FSIA itself provides exceptions to sovereign immunity in the case of confirmation of arbitral awards and that Venezuela had waived its immunity in actions to enforce ICSID awards by adhering to the ICSID Convention.  Previous case law in the Circuit had reached the same conclusion.

Questions of service of process, personal jurisdiction, and venue were more complex. The FSIA sets forth special procedures for serving foreign state entities, specifies that the proper venue is the federal court in the District of Columbia, and does not contemplate ex parte actions.[2]  It was uncontested that Mobil did not follow these procedures. Venezuela argued that the order enforcing the ICSID award must be vacated on that basis.

Having examined the history and text of the FSIA, the Court concluded that congressional intent was “unclear as to whether the procedures the FSIA prescribes were to apply to conversion of ICSID awards against foreign sovereigns.” To resolve the ambiguity, the Court analyzed the broader context of the ICSID Convention and its enabling statute, and noted the intent of the drafters to depart from the New York Convention recognition scheme: “the contracting states to the ICSID Convention intended to put in place an expedited and automatic recognition procedure.” The only role of national courts is to confirm the authenticity of ICSID awards. To find that a plenary lawsuit was required to enforce ICSID awards would be contrary to the ICSID Convention and its enabling statute—and would provide recalcitrant award debtors with an “avenue for delay.”

Sovereign immunity will, however, continue to play a role in proceedings to execute against assets of states following the recognition of an ICSID award. Judge Engelmayer noted that the ICSID Convention Contracting States left questions as to immunity against execution to national law. The FSIA’s provisions on execution—limits on what assets are subject to execution, requirement of court approval—will continue to apply when award creditors attempt to collect from a sovereign state.

Federal Courts Defer to Proceedings Within ICSID, Including Stays of Enforcement

The Court deferred to the internal review process at ICSID, noting that it is a “unique” tribunal and that “[a]ny challenge to the award is to be made within ICSID.” Venezuela has in fact applied to ICSID for revision of the award. The ICSID Secretary-General granted a stay of enforcement while those issues are resolved. Noting that stay, the New York federal court adopted the “prudent solution” of staying the enforcement of the award against Venezuela until the stay is lifted by ICSID.  The Court directed the parties to notify it of the status of the ICSID proceedings every 30 days.

According to Venezuela’s latest filings in federal court, which post-date Judge Engelmayer’s decision, on February 9, 2015 Venezuela applied to ICSID to annul the underlying ICSID award awarding Mobil USD 1.6 billion in damages. The ICSID Secretariat is in the process of constituting an ad hoc committee for the annulment proceedings.

What’s Next?

The decision provides a clear answer as to how ICSID awards are recognized in United States courts—automatically and without regard to the FSIA. Given the hotly contested issues of first impression arising before Judge Engelmayer as well as the sums in dispute, an appeal can be considered likely.

However, the award creditors are no closer to collection, because the federal court’s recognition of the award has been stayed and is likely to remain so until the ICSID annulment proceedings conclude.

 

Southern District of New York: Judge Paul A. Engelmayer
SDNY Part I (emergency) Court: Judge J. Paul Oetken

Counsel to Mobil Cerro Negro Ltd., et al. in the SDNY case: Steptoe & Johnson, LLP (Evan Glassman, Jared Robert Butcher, Jeffrey Michael Theodore, Michael Jeremy Baratz, Steven K. Davidson)

Counsel to the Bolivarian Republic of Venezuela in the SDNY case: Curtis, Mallet-Prevost, Colt & Mosle, LLP (Joseph D. Pizzuro, Juan Otoniel Perla)

Tribunal in the underlying arbitration: Gabrielle Kaufmann-Kohler, Ahmed El-Kosheri, and Gilbert Guillaume (Chair/President)


 

[1] Civil Practice Law and Rules (“CPLR”), Article 54. Section 5401 reads: “In this article ‘foreign judgment’ means any judgment, decree, or order of a court of the United States or of any other court which is entitled to full faith and credit in this state, except one obtained by default in appearance, or by confession of judgment.”  A separate article governs recognition of money judgments issued by courts of foreign countries (CPLR, Article 53).

[2] Personal jurisdiction is present when there is both subject matter jurisdiction and proper service of process.


Read full entry