You have won an award, and you are now facing the prospect of enforcing it. Perhaps the award debtor is a special purpose company, with no assets of its own, or it is located in a “difficult” jurisdiction. It might be that the award debtor is a sovereign state that refuses to pay for political or similar reasons. There may be many other reasons why you would shudder at the thought of having to spend another small fortune and months, if not years, on enforcing your award, potentially without success. It is at this point that some award creditors might consider cutting their losses and “selling” their award.
The market for “trading” awards seems to be quite opaque, especially insofar as purely commercial arbitration is concerned. In recent years, only a handful of examples of assigned awards appear to have come to light, all of which concerned investment arbitration awards. Those examples provide some interesting illustrations of potential issues that might arise when enforcing an assigned award.
In FG Hemisphere v DRC, two International Chamber of Commerce (ICC) awards had been assigned from EnergoInvest, a Bosnian state company, to FG Hemisphere, a US fund, which then sought to enforce the awards in a number of jurisdictions, including the US, Jersey and Hong Kong. It is interesting to note that in the Hong Kong proceedings the judge was initially “concerned that the assignment of the awards might constitute maintenance or champerty”. However, he subsequently accepted that, “on the authorities, it is highly arguable that the assignments here do not constitute maintenance and champerty”. No such issue appears to have arisen in the US and Jersey proceedings.
In Euler Hermes v PJSC Odessa Fat and Oil Plant, Euler Hermes (the assignee) sought to enforce a Federation of Oils, Seeds and Fats Associations (FOSFA) award in Ukraine. The application was refused on the basis that only the original party to the arbitration had the standing to seek enforcement of the award. Whilst the Ukrainian Cassation Court set aside the lower courts’ decisions, the case illustrates a potential hurdle in enforcing an award in certain jurisdictions.
Interestingly, a similar point was raised, unsuccessfully, by Argentina before the US court in Blue Ridge Investments v Argentina. That case concerned enforcement in the US of an International Centre for the Settlement of Investment Disputes (ICSID) award in the CMS Gas v Argentina case. The benefit of the award had been assigned to Blue Ridge, the petitioner in the case. Argentina argued, amongst other things, that “as an assignee, Petitioner lacks authority to seek recognition and enforcement of the Award”, and “only a party to the underlying arbitration can seek recognition or enforcement of the award under Article 54(2) [of the ICSID Convention], a transferee or assignee cannot.”
The judge carried out a detailed textual analysis of the use of the term “party” in the ICSID Convention and concluded that it “[did] not always refer to a ‘party to the arbitration’”. As New York law recognised assignment of judgments, the court found that “nothing in the ICSID Convention, in Congress’s legislation implementing ICSID, or in New York law prevents an assignee from seeking recognition and enforcement of an ICSID Convention award.”
A further interesting feature of the Blue Ridge case is that Blue Ridge used non-judicial avenues to force Argentina to honour the award. Blue Ridge successfully petitioned the US Trade Representative to suspend Argentina from the US Generalized System of Preferences, and lobbied the US government to block World Bank loans to Argentina.
The CMS Gas/Blue Ridge award was eventually settled by Argentina in 2013, along with four other awards: Vivendi, Azurix, National Grid and Continental Casualty. The latter two awards had also been assigned, reportedly to the US fund Gramercy. It seems that the assignment of those awards was part of the settlement structure, and it was not intended that the assignee companies would seek recognition and enforcement through courts.
More recently, in October 2016, a further two ICSID awards against Argentina were settled: BG Group and El Paso. Both awards had been assigned to what appears to be special purpose vehicles, and, as with the National Grid and Continental Casualty awards, it does not seem that the assignees intended to seek enforcement through the courts.
It is worth noting that the Argentine settlements in 2013 and 2016 were reported to have had over a 25% discount to the nominal value of the awards. This gives an indication as to the likely level of discount that the assignors agreed with the assignees which, in the circumstances, must have been significantly deeper than the 25% agreed by Argentina.
This brief overview suggests a few conclusions. First, the market for arbitral awards seems to be fairly limited, with most, if not all, of the publicly available information relating to investment arbitration awards.
Secondly, enforcement of assigned awards may give rise to certain legal issues, such as champerty and maintenance, or standing of the assignee. Whilst the likelihood of such issues arising might be limited, particularly in arbitration-friendly jurisdictions, the examples above suggest that it is worth bearing such risks in mind.
Thirdly, it seems that awards are “sold” at a deep discount. As noted above, the Argentine awards settled at over 25% to the nominal value, implying an even deeper discount on assignment. Thus, in FG Hemisphere, the underlying award for US $11.7 million was reportedly sold for US $2.6 million.
Finally, it seems that the success in enforcing an assigned award may depend to a significant extent on the political leverage (and financial clout) of the assignees, and take place in the context of broader political and economic processes, as the Argentine settlements acutely demonstrate. This naturally limits the number of parties potentially interested in purchasing awards.
In short, whilst the idea of selling an award might sound appealing in principle, it seems that in practice the opportunities to do so might be limited mainly to large awards in investment arbitration cases.