Enforcement of awards is a perennial issue in international investor arbitration, as legal frameworks for implementation can vary between courts and countries.
The International Centre for Settlement of Investment Disputes is the world’s leading institution dedicated to international investment disputes, and its caseload is increasing. In the 2024 fiscal year, the ICSID registered 58 cases, the second highest in its history.
The majority of cases heard at ICSID involved Bilateral Investment Treaties, but cases involving the Energy Charter Treaty ranked second. The ECT is a multi-lateral agreement that includes provisions on investment protection, dispute settlement, and trade and transit in the energy sector. Recently, the EU followed many of its member states in withdrawing from the ECT, and discussions have followed on how this will impact arbitration cases forward, especially given the expected rise in cases related to the energy sector.
Withdrawal from the ECT is of particular importance given that 27% of new cases at the ICSID involve the oil, gas, and mining industries. And since predications that the geopolitical landscape will likely mean further disputes related to supply agreements and contract termination, we may expect this number to rise again, no doubt bringing the issue of state-noncompliance with Investor-State Treaty arbitration awards to the fore with it.
A recent report found that Spain was the most non-compliant state in terms of paying adverse Investor-State Dispute Settlements related to the Energy Charter Treaty, with 24 unpaid awards that hold a collective value of $1.5 billion. Italy sits at second with 14 unpaid awards. Third is Romania, which currently has 8 outstanding awards with ICSID.
This accompanies announcements that Italian investors, who won a €110 million claim against Albania in 2019, have launched new legal proceedings over the State’s failure to pay.
The issue of non-compliance with ICSID awards is of particular concern for countries which have historically struggled to attract investment, such as Romania, with its 8 outstanding awards. Honouring international obligations is particularly important for these nations to reassure investors of any lingering concerns, and show that even during times of political uncertainty, commitment to the rule of law remains.
Petrochemical Holding GmbH’s arbitration with Romania, which relates to the application of the ECT in the oil and gas industry, is a particularly instructive case.
Petrochemical Holding GmbH is an Austrian investment holding company that has over 30 years’ experience in Central and Eastern European markets. Its investment in RAFO, one of Romania’s largest petrochemical plants, would have been a significant boon to the Romanian economy with the potential to position the country at the forefront of the European petrochemicals sector.
Petrochemical Holding GmbH was awarded €85 million by the ICSID in November 2024, after the arbitration found the company had been “denied the right to fair and equitable treatment” by the Romanian government, as set out by the ECT.
Honouring the award would go a long way to reassuring investors of the government’s commitment to providing an equitable investment environment in a vital sector of the nation’s economy.
ICSID states that Tribunal awards are binding on all parties, and allows for enforcement action if one party fails to comply with the an award. Contracting states are obliged to recognise this and investors may take the necessary steps under domestic law to give effect to an award in their favour. Generally, there are high levels of voluntary compliance with ICSID awards, as evidenced by a study on 231 ICSID awards that found that 90% of award payments were made voluntarily.
Therefore, for states like Spain, Italy and Romania who have a track record of holding off on payment, it is vitally important that they improve their record of honouring arbitration awards. For Romania especially, given that the number of ECT cases involving oil and gas is on the rise, now is as good a time as any to meet their legal obligations.
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State Compliance in International Arbitration Enforcements
