Subject Matter Jurisdiction for ICSID Arbitration Award Enforcement

by Lionel M. Schooler, FCIArb
Jackson Walker LLP¹

Introduction. In Pezold v. Republic of Zimbabwe, _____ F.4th _____, 2024 WL 4763943 (D.C. Cir. 2024), the United States Court of Appeals for the District of Columbia Circuit determined that in a proceeding to enforce an arbitration award, the issue of subject matter jurisdiction raised by the Republic of Zimbabwe was without merit because it had been waived as part of the agreement to submit the dispute in question to arbitration.

Background. This case began as a dispute over control and ownership of land. Pursuant to agreements signed concerning submission of such dispute to arbitration pursuant to the International Centre for the Settlement of Investment Disputes (“ICSID”) Convention, the claimants received separate arbitration awards totaling more than $300,000,000.

In this case, there were two applicable agreements, a German Bilateral Agreement and a Swiss Bilateral Agreement. Zimbabwe contended that these Agreements contained enforcement clauses dictating that any award resulting from such an arbitration could only be enforced in Zimbabwe.

Issue Presented. As identified by the D.C. Circuit, the issue in this case was whether the Agreements in question precluded enforcement of the awards outside of Zimbabwe.

Court’s Analysis: Scope of Agreements. The D.C. Circuit initiated its analysis of the dispute at hand by acknowledging that the Foreign Sovereign Immunities Act, 28 U.S.C. §1604, immunizes foreign states from the jurisdiction of American federal courts. It noted two exceptions to that general rule: (a) the arbitration exception; and (b) the waiver exception.

It focused upon the exception applicable in this case, the arbitration exception, confirming that the FSIA exposed a foreign state to the jurisdiction of American courts when an application is made to confirm an arbitration award governed by a treaty which permits United States recognition of such an award.

The Court then turned to the ICSID Convention, noting that such Convention provides facilities for arbitration at the World Bank in Washington D.C. The Court then noted that a party bound by an award can request an annulment of the award for reasons listed in ICSID Convention Article 52. If such an effort is unsuccessful, then according to the Court, the parties are bound by the award which can be enforced in any contracting state to the Convention, a power that Congress confirmed in 22 U.S.C. §1650a.

Lower Court Decision. As noted above, the ICSID arbitral panels issued two awards to the claimants against Zimbabwe totaling more than $300,000,000. Zimbabwe then instituted a challenge to the enforcement process in the U.S. District Court for the District of Columbia. That court rejected Zimbabwe’s position altogether, holding that the awards could be and would be enforced in a U.S. court.

Appellate Review. The D.C. Circuit commenced its analysis of the case by focusing upon the boundaries of the arbitration exception in FSIA. It identified the criteria for enforcement to include the existence of an agreement to arbitrate, the existence of an arbitration award, and the existence of a treaty governing award enforcement.

From there, the Court noted that both the German and the Swiss Bilateral Agreements satisfied the first criterion; that the ICSID arbitration panel issued a valid arbitration award; and that the applicable treaty for award enforcement is the ICSID Convention.

Turning to Zimbabwe’s contention that it had only agreed to arbitrate investment disputes by including as a condition that any arbitration award would only be enforced in Zimbabwe, the Court determined that the language of the applicable Agreements authorized enforcement proceedings in a U.S. federal court. It specifically rejected Zimbabwe’s effort to convert what was essentially a “choice of law” provision about substantive law into an exclusive venue clause for award enforcement. It acknowledged solely that given the presence of the land in dispute was located in Zimbabwe, the law to be applied in enforcement proceedings was Zimbabwean law.

Conclusion. The decision in the Pezold case reminds investment treaty participants yet again of the importance of the breadth of the language contained in the ICSID Convention when it comes to enforcing arbitration awards.

¹ Mr. Schooler is former Board Member of the North America Branch of the Chartered Institute of Arbitrators, and the immediate Past Chair of its Texas Chapter.