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Investment Arbitration, the ICSID, and Stay of Enforcement of Arbitral Awards: Spotlight on The Gambia’s Recent Victory by Prof. Uche Ewelukwa Ofodile, S.J.D. (Harvard)*

12 Mar 2019 8:06 AM | Anonymous
Introduction

On November 11, 2015, the Republic of The Gambia (“The Gambia”) filed an application for annulment of an Award rendered on July 14, 2015, (the “Award”) in the case of Carnegie Minerals (Gambia) Limited v. Republic of The Gambia, ICSID Case No. ARB/09/19. As part of its application for annulment, The Gambia requested a stay of enforcement of the Award. Pursuant to Section 52(5) of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the “ICSID Convention”) and Rule 54(1) of the ICSID Rules of Arbitration Proceedings (the “Arbitration Rules”), the enforcement of the said Award was provisionally stayed on November 19, 2015. On February 1, 2016, an ad hoc Committee (“Committee”) of the International Center for the Settlement of Investment Disputes (“Center”), acting pursuant to Arbitration Rule 54(2), extended the stay of the enforcement of the Award. On September 4, 2018, The Gambia filed application for a continued stay of enforcement (“Application”) of the said Award. On October 18, 2018, the Committee granted The Gambia’s request. While celebrating The Gambia’s recent victory, it is important to remember that a stay of an ICSID award is a temporary and an extraordinary remedy and that it is not granted automatically. What lessons then can a prospective applicant for a stay learn from this case? What are the potential obstacles and challenges to an application for a stay?

Carnegie Minerals (Gambia) Limited v. Republic of The Gambia: Position of the Parties

The Gambia based her request for a stay on economic hardship and the prejudice that would result to it from lifting the stay. The economic hardship argument was based on the impact that payment of the Award would have on the economy of The Gambia.  The Gambia argued that lifting the stay would cause it economic hardship as “the enforcement of the Award sum would amount to at least 2% of The Gambia’s entire GDP,” and “[p]aying the Award while the possibility of annulment exists—along with the risk of non-recoupment—would put a significant, unnecessary, and unavoidable impediment upon those development efforts.”

As summed up by the Committee, The Gambia’s prejudice argument was based on the claim that, “if it were to pay the award The Gambia would run the risk of having difficulty recovering any amounts paid if the Award were to be annulled, particularly in light of the fact that the benefit of the Award is being held on trust and the Claimant has not disclosed information about that trust that The Gambia has requested.”

Carnegie Minerals (Gambia) Limited (“Carnegie”) argued, unsuccessfully, that two and a half years had already passed since the registration of the application for annulment, and that maintaining the stay would cause prejudice as the Award does not include post-Award interest and the beneficiary of the Award suffers the devaluation of the Award with the passage of time. Carnegie also argued, again unsuccessfully, that there was a risk that The Gambia will not comply or enforce the Award if it is upheld. 

Potential Obstacles and Challenges to a Request for a Stay of Execution of Award

One of the biggest considerations for a prospective applicant is purely financial.  An application for a stay of enforcement of arbitral award necessarily involves considerable expenses in the form of legal fees, cost of the proceedings, and other related expenses. In Carnegie Minerals (Gambia) Limited v. Republic of The Gambia, The Gambia had problems paying the necessary fees and this prompted the Center to suspend proceedings or threaten to suspend proceedings. On March 28, 2016, the Center notified The Gambia’s default to pay the required advances. On April 12, 2016, the Committee authorized The Gambia to pay the required advances in installments. Not until June 2016, upon receipt of a partial payment of the required advances, were the parties invited to confirm their availability for a first session. On March 7, 2017, proceedings were suspended for non-payment of the required advances. Proceedings resumed on April 17, 2018, following the payment of the required advances.

A second consideration for a prospective applicant is the ability to advance cogent grounds (supported as necessary by evidence) for a stay.  Rule 54(4) of the Arbitration Rules require the applicant to specify the circumstances requiring a stay, but is silent about burden of proof and what it takes to discharge this burden. In Standard Chartered Bank (Hong Kong) Limited v. Tanzania Electric Supply Company Limited (“SCB HK v. TANESCO”), the ad hoc Committee observed that Article 52(5) of the ICSID Convention, “does not indicate that one particular party bears the burden of establishing circumstances requiring a stay” and that establishing the existence of such circumstances is part of the Committee´s discretionary power. 

Stay of Awards: Legal Strategies and Arguments

An award creditor can always oppose a request for a stay of enforcement. As the Committee noted in SCB HK v. TANESCO, “it is for the award debtor to advance grounds (supported as necessary by evidence) for the stay. If the award creditor disputes these grounds, it must also advance evidence in support of any ‘positive allegations’ that it makes.” In addition to or in the alternative, an award creditor can request that the annulment Committee order an applicant to provide security in the form of an unconditional and irrevocable bank guarantee for the whole amount of the Award. In Carnegie Minerals (Gambia) Limited v. Republic of The Gambia, Carnegie requested, unsuccessfully, that The Gambia provide security in the form of an unconditional and irrevocable bank guarantee for the whole amount of the Award issued by a first-tier reputable international credit institution (outside of The Gambia and with no principal establishment branch in The Gambia) immediately payable upon the issuance of a final decision of the Committee rejecting the Application for annulment, or if the Annulment Proceedings are withdrawn or discontinued.

Conclusions

Carnegie Minerals (Gambia) Limited v. Republic of The Gambia teaches a number of very useful lessons:

1. When the situation warrants, a losing party in an investor-State arbitration claim should consider requesting a stay of enforcement of any related arbitral award. Every party to an ICSID dispute that applies for an annulment as contemplated under the ICSID Convention has a legitimate right to request for a stay of enforcement or the continuation of a stay of enforcement until a committee renders a final decision on the request for annulment. However, a request for a stay of enforcement of an arbitral award cannot be made willy-nilly and can only be made in conjunction with an application for annulment.

2.  The decision whether or not to grant a stay is at the discretion of the annulment committee. In Libananco Holdings Co. Limited v. Republic of Turkey, the Committee noted that: “The exercise of the discretion of the Committee depends on the circumstances surrounding the Stay Request.”

3. With every application for a stay, the key test is whether there is “sufficient doubt” that the applicant on annulment will comply with the award, if upheld. Given this test, an applicant for a stay is well advised to advance pertinent and sufficient evidence to dispel any doubt.

4. Whether a stay would be granted or denied does not depend on the potential merits of the application for annulment. Indeed, a sizeable group of committees have held that the prima facie grounds for annulment are not relevant to whether an applicant on annulment is entitled to a stay.

5.  Although requests for stays are frequently granted, the award creditor is not entirely at the mercy of the award debtor. First, the award creditor can raise sufficient doubt as to the award debtor’s willingness and ability to comply with the award. Second, the award creditor can argue that if a stay is to be granted, it should be made conditional upon the provision of adequate security.

6. While The Gambia was lucky to obtain an unconditional stay of enforcement, some applicants are not so lucky. In SCB HK v. TANESCO, the Committee granted TANESCO’s request for the continuation of the stay of enforcement of the award but on the condition that, “TANESCO provide an unconditional and irrevocable bank guarantee or security bond issued by a first-tier reputable international credit institution … for the full amount of the Award rendered against TANESCO, inclusive of all interest accrued to the date of issuance of said irrevocable bank guarantee or security bond, and immediately payable to or cashable by SCB HK upon the issuance of a final decision of the Committee rejecting the annulment, or if the annulment proceedings were withdrawn or discontinued.” The Committee also ruled that in the event that TANESCO declined to issue such guarantee, the termination of the stay on enforcement would be automatic.

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* E.J. Ball Professor of Law, University of Arkansas School of Law; Arkansas Bar Foundation Professor (2014 – 2016).

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