In a first for ICSID, an ad hoc annulment committee¹ has denied a respondent state’s request to stay enforcement of an arbitral award while the respondent’s application to annul the award remains pending.

The annulment committee’s decision was rendered on March 22, 2013 in the case SGS Société Générale de Surveillance S.A. v. Republic of Paraguay, ICSID Case No. ARB/07/29. The claimant, SGS, holds an ICSID award against Paraguay in the amount of US$39,025,950.86 plus simple interest. On June 7, 2012, Paraguay submitted an application to ICSID for annulment and a request for stay of enforcement of the award.  Paraguay’s annulment application triggered a provisional stay of enforcement pursuant to ICSID Arbitration Rule 54(2). After the annulment committee was constituted, SGS requested a lifting of the provisional stay or, if the committee decided to continue the stay, that Paraguay be required to post a bond as security for the award.

In support of its request for a continued stay of enforcement, Paraguay argued, inter alia, that (i) its application for annulment was substantial and had not been made for dilatory reasons; (ii) a continued stay would not prejudice SGS because interest would continue to accrue on the compensation award; (iii) Paraguay has no history of non-compliance with international arbitration awards; and (iv) no exceptional circumstances existed that would require Paraguay to provide security in order to continue the stay of enforcement. Paraguay also correctly pointed out that no previous ad hoc committee had ever declined a request to continue the stay of enforcement of an award while an annulment application was pending.²  According to Paraguay, this fact demonstrated that a stay should be granted absent exceptional circumstances.

SGS, on the other hand, argued that, under the plain language of the ICSID Convention, awards are immediately binding and a stay of enforcement is the exception, not the rule. SGS disputed Paraguay’s contention that a stay of enforcement would not cause financial prejudice and argued that there were strong doubts about Paraguay’s intent to comply with the award and whether the annulment application was being made in good faith rather than as a dilatory tactic.

The annulment committee first addressed the analytical framework and standards for deciding a request for a continued stay of enforcement of an award. First, it noted that, based on the plain language of Article 52 of the ICSID Convention and ICSID Arbitration Rules 52 to 54, a continued stay of enforcement of an award is not automatic and that a continued stay is within the discretion of the committee and dependent on the specific circumstances of the case.³  According to the committee, this conclusion is reinforced by Article 53 of the ICSID Convention, which states that the binding nature of an award is the rule, whereas its annulment is the exception and should only be granted under highly limited circumstances.⁴  Second, the committee noted that, under Rule 54(4) of the ICSID Arbitration Rules, the party interested in the continued stay bears the burden of proof to demonstrate the existence of circumstances that warrant such continuation.⁵

Applying these standards, the annulment committee held that Paraguay had not demonstrated that the specific circumstances of the case required continuation of the stay of enforcement. First, it noted Paraguay’s argument that SGS would not be prejudiced by a continued stay mistakenly reversed this issue – instead of showing that SGS would not be prejudiced, it was Paraguay’s burden to show that it would be prejudiced if enforcement of the award were allowed. In this regard, Paraguay had not argued that it was unable to pay the award immediately or that it would suffer economic hardship if required to do so.⁶

The committee also did not credit Paraguay’s argument that its annulment application had not been presented for a dilatory purpose. The committee instead agreed with SGS that Paraguay should not be entitled to receive the benefit of a stay of enforcement merely because it acted as it was expected to.⁷

The committee also gave no credit to the special power granted by the President of the Republic of Paraguay to the Attorney General to provide a “sworn commitment” on behalf of the State to comply with the terms of the award. The committee, instead, took note of Paraguay’s recent history of non-compliance with its ICSID-related payment obligations. This non-compliance included its repeated failure to make timely payment of its ICSID fees and costs in the case and its outstanding obligations to pay at least three substantial international arbitration awards.⁸

The committee also briefly noted that the continuance of stay decisions made by other ad hoccommittees were not decisive or binding upon it.⁹

Having rejected Paraguay’s request for a continued stay of enforcement, the annulment committee deemed it unnecessary to decide whether to order Paraguay to post a bond or other security if the stay were continued.

By finding that a stay of enforcement should be the exception rather than the rule and that a state’s history of non-compliance with payment of ICSID obligations and arbitration awards should weigh against continuance of a stay, the annulment committee decision in SGS marks a potential shift in the risk-reward calculus for respondent states who are weighing whether to pursue an annulment application. Whereas states could previously assume that a stay of enforcement would be granted while its annulment application is pending absent exceptional circumstances, the SGS decision, if adopted and followed by other annulment committees, could now potentially discourage states – and especially those with a history of non-compliance with awards – from automatically pursuing long-shot annulment applications.

The SGS v. Paraguay Decision on Paraguay’s Request for the Continued Stay of Enforcement of the Award is available here.

_{¹ The annulment committee is comprised of President Rodrigo Oreamuno (Costa Rica), Eduardo Zuleta (Colombia) and Abdulqawi Ahmed Yusuf (Mauritius and France).  UP}