Overview
First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. Last month, we discussed the series of significant federal appellate opinions interpreting the Foreign Sovereign Immunities Act (FSIA) that we dubbed the "Summer of the FSIA." As fall approaches, the spate of sovereign immunity cases has only continued, with DC Circuit opinions addressing the New York Convention's requirement that arbitration agreements and awards be in "commercial" matters and a number of issues regarding intra-EU investment treaties. Meanwhile, a DC District Court opinion has held, somewhat surprisingly, that entry of International Centre for Settlement of Investment Disputes (ICSID) awards as a judgment is subject to DC's statute of limitations for judgments.
Zhongshan Fucheng v. Nigeria: BITs Are "Commercial" for New York Convention Purposes
We start with some important news for the enforceability of investor-state arbitration awards under bilateral or multilateral investment treaties, especially ones from ad hoc or otherwise non-ICSID tribunals. In Zhongshan Fucheng Industrial Investment Co. Ltd v. Federal Republic of Nigeria, No. 23-7016, 2024 WL 3733341 (DC Cir. Aug. 9, 2024), a divided panel of the DC Circuit rejected Nigeria’s contention that an award under a China-Nigeria bilateral investment treaty was sovereign rather than commercial, and thus outside the scope of the New York Convention.
The distinction between a commercial dispute and a sovereign one matters under the arbitration exception to the FSIA, because of the requirement that an award "be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards." 28 U.S.C. § 1605(a)(6). The New York Convention is, for most awards, that treaty—but there's a catch. Unlike the majority of signatories, the United States took the option provided by Article I(3) of the New York Convention to adopt the "commercial reservation," limiting the treaty to disputes arising from relationships “considered as commercial.” 21 U.S.T. 2517 at 2560; 9 U.S.C. § 202. Unhelpfully, "commercial" is undefined.
Nigeria seized on this reservation to argue that an award arising from a bilateral investment treaty was not "commercial." No matter that Congress, in adopting the arbitration exception, conspicuously provided for jurisdiction for arbitration agreements "for the benefit of" private parties—an obvious reference to investment treaties providing for investor-state arbitration—it argued. 28 U.S.C. § 1605(a)(6). It contended that the arbitration agreement itself—the treaty—had to be part of a commercial relationship.
The majority disagreed with Nigeria's assertion. The treaty, the court held, created a legal relationship not only between China and Nigeria, but also between Chinese investors and Nigeria, with the treaty "lay[ing] out in precise terms the duties" the state owed the protected investors and affording investors the benefit of an agreement to arbitrate. Slip Op. at 12-13. "[A] treaty is a contract," it held, and "contract law has long permitted parties to contract for the benefit of a third party." Id. at 13. Indeed, like many investment treaties, the China-Nigeria one had "two distinct dispute-resolution mechanisms," one for the benefit of private parties and one for state-versus-state disputes. Id. at 13-14. Thus, Nigeria "owe[d] Zhongshan"—and not just China—"a duty to perform Nigeria's promises, and Zhongshan has the right to enforce those promises through arbitration." Id. at 14. Thus, Zhongshan had a legal relationship with Nigeria.
And that relationship was a commercial one. "The relationship exists," the majority explained, "because Zhongshan made a commercial investment . . . under a bilateral treaty aimed at promoting commercial investment and protecting commercial investors." Id. at 14. That easily satisfied the "broad scope" of "commercial" under the reservation and the Federal Arbitration Act, which extends to any relationship that "has a connection with commerce." Id. The majority identified "at least five" features that made the relationship commercial, including the "investment in a money-making enterprise,” that the free trade zone was intended "to promote commercial activity," that relaxed tariffs were "connected to commerce," that Nigeria collected taxes connected to commerce from the investment, and that the investment treaty was “expressly designed to promoted commerce” by encouraging investment and protecting investors. Id. at 15.
The majority then rejected additional counterarguments, including the argument that a state's sovereign acts are outside the exception. E.g., id. at 28. Judge Katsas's 25-page dissent, however, took the position that the Convention was not intended to catch sovereign acts at all—a position that would mark a sea change in interpretation of the Convention and that would exclude non-ICSID investment arbitration from enforcement under the arbitration exception (and perhaps the implied waiver exception too) absent an impractical investment-by-investment arbitration agreement with the sovereign. Investors should thus count themselves fortunate that the dissent’s view did not prevail.
NextEra: The Intra-EU Arbitration Saga Continues.
The DC Circuit's treatment of sovereign immunity continued a week later with another chapter in the long-running saga of whether or not intra-EU investment arbitration awards are enforceable. In NextEra Energy Glob. Holdings B.V. v. Kingdom of Spain, No. 23-7031, 2024 WL 3837484 (DC Cir. Aug. 16, 2024), decided alongside two companion cases raising similar issues,1the DC Circuit unanimously rejected sovereign immunity claims but split on an appeal of a defensive anti-suit injunction (sometimes known as an anti-anti-suit injunction), with the majority overturning an injunction against anti-suit proceedings in the plaintiffs' home jurisdictions.
The proliferation of litigation in the US surrounds the attempted recognition of intra-EU investment treaty claims, mostly, as here, under the Energy Charter Treaty, in light of the EU courts' holdings that EU law prohibited arbitrating the claims and the remedies ordered by arbitrators. This litigation has been ongoing for about a decade. Generally speaking, EU courts have held that investment treaties that EU members entered into, largely during the era between the Maastricht Treaty and the Lisbon Treaties, violate EU law insofar as their arbitration provisions purport to supersede the EU courts' exclusive jurisdiction to decide disputed matters of EU law. The EU has been hostile to many of the awards as reflecting violations of assorted portions of the substantive law of the EU, such as arbitrators' views that EU treaties are not superior to other international obligations of a state, the EU's post-Lisbon exclusive competencies over certain trade policy-related issues, and the EU's longstanding prohibition on state aid absent Commission approval. That has manifested itself in a variety of efforts to compel states to ignore the awards or to hold that their agreement to certain treaty terms was illegal under EU law, which the EU has long regarded as superior to other sources of law.
The DC Circuit's latest decisions sound initially like a win for the investors: it held that Spain had consented to arbitrate by signing the Energy Charter Treaty for the benefit of investors of other signatories. Slip Op. at 24-25. Whether intra-EU investors were actually covered by that consent to arbitrate was "an argument regarding the scope" of the provision, "not its existence." Id. at 25. So, the court held, the arbitration exception applied and US courts have jurisdiction. Id. Spain might have a defense on the merits of the award recognition claim, but that was not a question before the court. Id. at 28. As has become a habit in the DC Circuit, that conclusion that the arbitration exception applied removed the need to weigh in on an assortment of hotly contested issues, including whether the ICSID Convention was a pre-FSIA international agreement that requires an exception from sovereign immunity anyhow, id. at 28-29, or whether the DC Circuit should create a split with the Second Circuit, many international courts, and its own unpublished opinions and dicta by refusing to apply the implied waiver exception to arbitration awards, id. at 18-20.
But whether this investor win in defeating sovereign immunity will ultimately lead to enforceable judgments remains an open question—and one that may ultimately be decided in European anti-enforcement injunction proceedings. Holding that comity did not support US courts precluding actions for anti-suit relief in the plaintiff's home country, the court vacated the anti-anti-suit injunction. Distinguishing the Laker Airways case where the DC Circuit had affirmed a defensive anti-suit injunction against British proceedings seeking to enjoin a British company from bringing antitrust claims in the US, the majority held that the district court had given insufficient weight to the sovereign status of the defendant. Slip Op. at 34-36. Especially given the sovereign status of Spain, it continued, the United States lacked a sufficient interest to overcome the comity concerns: rather than protecting American consumers by enforcing American antitrust laws, as in Laker, this anti-anti-suit injunction principally prevented Luxembourg and the Netherlands from ruling on disputes involving their own investors and a treaty between them and Spain. Id. at 38-39. The court accordingly held that this record could not support an anti-suit injunction, and dissolved the injunction and remanded for further proceedings.
Judge Pan dissented on this point, contending principally that the US's obligation to uphold the ICSID Convention was sufficient to justify defending US jurisdiction against anti-suit attack. But with her views in the minority, it appears that the question of whether enforcement in the US may continue will be decided by Dutch and Luxembourgish courts. What will happen there is far from clear: while those courts have an obligation to apply EU law, a number of anti-enforcement injunction proceedings in lower courts in the Netherlands and Germany in similar Energy Charter cases have generally held that EU law does not mandate an anti-enforcement injunction, particularly where none would usually be available under ordinary procedures in those jurisdictions. As the issue reaches appellate courts in those jurisdictions, it is likely that sooner or later the issue of anti-enforcement injunctions will ultimately be referred back to the EU’s courts.
A Statute of Limitations for ICSID?
Finally, we make a brief stop in the US District Court for the District of Columbia for an interesting opinion addressing statutes of limitations in ICSID proceedings. The conventional view on this point has long been straightforward: there isn't one. The ICSID Convention does not limit the time period for enforcing awards—nor explicitly allow contracting parties to apply their own limitation periods. The US statute implementing its duties under the Convention, 22 U.S.C § 1650a, does not include one either.
Yet in a recent decision, Judge Cobb held that the absence of a statute of limitations means that federal courts must find one by analogy. Titan Consortium 1, LLC v. Argentine Republic, No. 21-CV-2250, 2024 WL 3858821 (D.D.C. Aug. 19, 2024). That approach is somewhat common for actions like 42 U.S.C. § 1983 claims, but has not conventionally been applied to ICSID claims. The opinion does not seem to focus on the United States' treaty obligations. Fortunately for investors, Judge Cobb concluded that the most analogous statute of limitations is the District of Columbia's twelve-year period to bring an action to recognize a judgment. Argentina had contended that either the one-year statute of limitations under the DC Uniform Arbitration Act or the three-year period to bring a summary confirmation proceeding under 9 U.S.C. § 207, the New York Convention implementing statute, applied. But it is somewhat surprising to see little consideration of the ICSID Treaty in a case about the statute designed to implement the Treaty. The plaintiffs in the action appear to have chosen to argue that state statutes of limitations for actions on judgments apply (since their action was timely if they do) rather than contending that the Treaty provides for enforceability without time limits, so the court’s opinion may simply reflect the parties’ arguments. Argentina will presumably appeal, so watch this space.
1 The companion cases decided in the same opinion were 9REN Holding S.A.R.L. v. Kingdom of Spain, No. 23-7032 (D.C. Cir. Aug. 16, 2024) and Blasket Renewable Investments LLC v. Kingdom of Spain, No. 23-7038 (D.C. Cir. Aug. 16, 2024).
These cases did not include perhaps the most prominent intra-EU investment treaty case, Micula v. Government of Romania. In Micula, judgment on the arbitration award was entered in 2019 and affirmed on appeal in 2020. Romania sought to vacate the judgment based on subsequent CJEU decisions regarding intra-EU bilateral investment treaties, but the trial court denied the motion and the DC Circuit affirmed the denial earlier this year.
