CHAPTER 3 International Energy And Minerals Arbitration: Host Governments And State Enterprises
| Jurisdiction | United States |
(Feb 2002)
International Energy And Minerals Arbitration: Host Governments And State Enterprises
Shearman & Sterling
Paris, France
SHEARMAN & STERLING
Houston
February 7, 2002
Introduction
I. Sovereign Immunity
• Immunity from jurisdiction
• Immunity from execution
II. Drafting arbitration agreements for granting instruments
• Choice of the seat of the arbitration
• Ad hocarbitration versus institutional arbitration
• Governmental agencies and constituent subdivisions
• Waiver of immunity
• The issue of amiable composition
• Conservatory and interim measures
III. Problems of enforcement of arbitration agreements
• Validity and scope of arbitration agreements
• Reliance by a State on its own law to renege on an arbitration agreement
• Jurisdictional issues: the example of ICSID arbitration
IV. Choice of law issues
• The law of the Contracting State
• Incorporating stabilization clauses
• General principles of law and Lex Mercatoria
• The issue of industry standards
• Use of international treaties
Conclusion
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Commentary
Recent Developments In State Immunity From Execution In France: Creighton v. Qatar Emmanuel Gaillard and Jenny Edelstein
[Editor's Note: Emmanuel Gaillard is head of the international arbitration group of Shearman & Sterling and managing partner of the Firm's Paris office. He is also a Professor of Law at the University of Paris XII. Jenny Edelstein is an associate of Shearman & Sterling, based in the Paris office. Copyright 2000 by the authors. Replies to this commentary are welcome.]
There can be no doubt today that international arbitration has become the dispute resolution mechanism of preference for contracts between private parties and sovereign states or state-owned entities. Moreover, in the field of arbitration of state contracts, the trend has increasingly been for the state-party to be treated no differently than its private co-contractor. Indeed, as states become more frequently involved in commercial activities, special regimes for states and state-owned parties often appear incompatible with the requirements of international trade, such as the need to ensure the respect of agreements freely entered into by the parties.
One consequence of this trend is that in the legal systems in which states and public law entities are, in principle, prohibited from submitting disputes to arbitration, such prohibitions have been held not to apply to disputes arising from international commercial transactions. In France for example, in the landmark 1966 Galakis decision, the Cour de cassation held that the rule prohibiting public law entities from submitting disputes to arbitration was intended to apply to domestic contracts, but "cannot apply to an international contract entered into for the purposes of the shipping trade under conditions complying with the usages thereof." 1 Even more explicitly, in 1996 the Paris Court of Appeals held, in KFTCIC v. Icon Estero, that not only was the commercial nature of arbitration not affected by the participation in the proceedings of a state-owned entity, but it was also not affected by the fact that the dispute concerned public works, in that case the construction of an embassy.2
As a result, arbitration agreements entered into by states and state-owned entities are considered valid, in France and in every modern legal system of the world, and have in fact become so common as to be quite banal, and as unremarkable as arbitration agreements between private parties. Indeed, although states or state-owned entities do in principle enjoy immunity from jurisdiction, it is widely acknowledged that they may waive such immunity from jurisdiction by agreeing to submit to arbitration. As a result, an arbitration agreement is considered to constitute a waiver from immunity of jurisdiction of a state or state-owned party.3
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However, one distinguishing characteristic continues to clearly differentiate state parties from private parties to international arbitration, that of immunity from execution. The question of whether, and how, a state may waive its immunity from execution is indeed a more complex and variable one. In most countries today, it is acknowledged that assets of a state which are not destined for use in sovereign activities are not covered by the state's immunity from execution, and as such may be attached by the creditors of that state.4 Thus, when a state or state-owned entity agrees to refer disputes to arbitration, this is generally deemed to be done on the basis that any award against it would be enforced against assets used for its commercial activities, but not against assets used for its sovereign activities unless the state has waived its immunity from execution. The act of entering into an arbitration agreement and thereby waiving immunity from jurisdiction, will not be considered sufficient to constitute a waiver, on the part of the state party, of its immunity from execution, as least insofar as concerns the assets used to perform its sovereign activities.5 Consequently, only an express waiver of immunity from execution should allow a successful party to enforce its award against all state assets.6
This proposition has, however, been rejected by the French Cour de cassation, the equivalent of the U.S. Supreme Court, in its landmark Creighton v. Qatar decision of July 6, 2000.7 In Creighton v. Qatar, the French Court has placed states on virtually the same level as private persons in terms of enforcing arbitral awards, at least when the award is rendered under the auspices of the ICC or similar arbitration rules. Indeed, in a major step forward in ensuring the enforceabiliry of arbitral awards against states in France, the Court decided that contrary to previous case law, the sole fact that a state had entered into an agreement to submit disputes to arbitration under the auspices of the ICC entailed that the state was deemed to have waived its immunity from execution.
(Text of Decision in Section A.) Document number 05-001030-101.
In Creighton v. Qatar, the U.S. company Creighton Ltd. attempted to enforce three arbitral awards rendered in Paris against the government of Qatar in connection with a dispute arising from the construction of a hospital in Doha (Qatar), by seizing assets belonging to the latter held by the Qatar National Bank and the Banque de France. The Paris Court of Appeals, in a decision of July 11, 1998, had ordered the reinstatement of the seized assets on the basis that, first, the foreign state had not waived its immunity from execution, and second, that it had not been established that the assets in question were for commercial usage or that the activities of the bank were related to the disputed contract.
The Cour de cassation reversed the decision of the Court of Appeals, finding that while the lower court had correctly found that the mere acceptance of an arbitration clause by a state did not per se create a presumption of waiver of immunity from execution, such a waiver could nonetheless be inferred from the state's acceptance, at the time of the signature of the arbitration clause, of the executory character of the arbitral award. The Cour de cassation noted that under the ICC Rules of Arbitration in force at the time of the conclusion of the contract between Creighton and the State of Qatar, the parties undertook to enforce the arbitral award without delay, and recognized its executory character.8 The Court concluded that as a result of its commitment to enforce the arbitral award in accordance with Article 24 of the ICC Rules, the State of Qatar had effectively waived its immunity from execution. In any event, the Court found, "although
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immunity from execution of States is the rule when such immunity has not been waived, the immunity does not cover assets intended for private economic or commercial activities." Although concluding that it was not necessary, as a result of this finding, to rule on the objection relative to the commercial nature of the assets in question, the Cour de cassation nonetheless rejected the argument that the commercial purpose of the assets in question had not been established, noting that such a commercial purpose may be presumed in the presence of certain circumstances, including by the very nature of the assets in question. The Court noted that assets held in a commercial enterprise, such as those held by the Qatar National Bank on behalf of the State of Qatar could be presumed to have a commercial purpose given the commercial nature of the activity of the bank.
Creighton v. Qatar confirms the principle that sovereign immunity from execution does not cover assets used for commercial purposes, and clarifies the question of whether by entering into an arbitration agreement a state may be deemed to have waived its immunity from execution, stating that:
"the acceptance of an arbitration clause cannot create the presumption of a waiver of immunity from execution, this being distinct from immunity from jurisdiction for which any waiver must also be distinct." Most significantly, however, the decision of the Cour de cassation is extremely innovative in defining what acts may constitute a waiver of immunity from execution. Previous case law was divided on the question. In one line of case law, the Rouen Court of Appeals endeavoured to give full effect to awards rendered against a state, rather than allowing the state to agree to submit disputes to arbitration despite its immunity from jurisdiction, but then prevent the award from becoming enforceable simply by relying on its immunity from execution. Thus, for example, in the June 20, 1996 Bec Freres v. Office des cereales de Tunisie decision of the Rouen Court of Appeals, it was held that by agreeing to an arbitration clause, a state accepted "the ordinary legal...
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