Originally from Practical Guide to International Arbitration

INTRODUCTION

In most respects, arbitrating with States and State entities is the same as arbitrating with private parties. By virtue of their sovereign nature, though, States and State entities fundamentally differ from private business entities, and they often receive special treatment under national laws. For this reason, lawyers advising commercial entities must take extra precaution when they engage in deals with sovereign entities.

States and State entities may assert immunity to circumvent various aspects of arbitration, including court proceedings to enforce an arbitration agreement or confirm an arbitral award, or efforts to execute against State assets. While many immunity laws contain specific arbitration exceptions, and it is widely accepted in case law that States may not claim immunity from suit arising out of an arbitration agreement after they have concluded such an agreement, some State assets are immune from execution under almost all circumstances.  On the whole, and in general terms, State immunity from jurisdiction (or suit) is less of a risk in arbitration than immunity from execution.

Aside from immunity, States and State entities may argue that they are not proper parties to an arbitration, or that an award against one cannot be used to execute against the assets of the other.  Tribunals and courts typically resolve these objections by examining the entity’s legal personality and the State’s conduct and control over the entity.

Parties frequently pursue arbitration against States and State entities in forums such as the International Centre for Settlement of Investment Disputes (ICSID) and the Permanent Court of Arbitration (PCA), both of which have specialized rules that balance the interests of States and private parties. Many ICSID and PCA cases are conducted pursuant to a bilateral or multilateral investment treaty that protects foreign investors against State conduct that is unlawful under international law standards.