The High Court of Australia enforces ICSID Award against Spain and clarifes scope of sovereign immunity defence

Introduction

The High Court of Australia (the highest court in that jurisdiction) ('HCA') has upheld the order granting recognition and enforcement of an arbitral award for €101 million ('Award') made against the Kingdom of Spain under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965 ('ICSID Convention'). In Kingdom of Spain v Infrastructure Services Luxembourg & Anor, 12 April 2023 ('HCA Decision')[1], the HCA clarifies the extent to which Contracting States to the ICSID Convention are taken to have agreed to waive their immunity from the jurisdiction of foreign courts for the purposes of recognition and enforcement of awards made against them, and provides important commentary on the concepts of 'recognition', 'enforcement' and 'execution' of arbitral awards.

The HCA held that Spain signing the ICSID Convention amounted to a waiver of its immunity from the jurisdiction of the Australian courts with respect to recognition and enforcement of the Award, but not with respect to execution. This means that Australian courts will recognise arbitral awards against Contracting States to the ICSID Convention as binding and the pecuniary obligations within such awards will be enforceable as if the award were a judgment or order of the Australian courts, in the sense that –importantly – the courts can order the foreign State to pay damages. However, Contracting States will remain immune from execution in respect of any awards made against them, in the sense that Australian courts cannot force compliance with pecuniary obligations by seizing the property of the foreign State and selling it – unless one of the statutory exceptions in respect of immunity from execution applies.

Background

In the early 2000s, Spain offered financial incentives to foreign investors who were willing to invest in renewable energy projects on Spanish soil. Multiple companies took advantage of this offer, including Eiser Infrastructure (the predecessor to Infrastructure Services Luxembourg S.à.r.l.) and Energía Termosolar B.V. (together, 'Investors'), which invested significant sums in solar power projects. Following the 2008 financial crisis in Spain, the State began to renege on these financial incentives.

As a result, the Investors brought arbitration proceedings against Spain under the ICSID Convention, on the basis that Spain had breached the Energy Charter Treaty. The Investors were successful and obtained an award against Spain for €101 million. 

Spain sought to annul the award before an ICSID annulment committee in 2021, but was unsuccessful.

The Investors commenced proceedings in the Federal Court of Australia seeking to 'enforce' the Award under the relevant Australian legislation[2] and recover the sum they were owed under the Award. The Investors sought orders to the effect that Spain pay the Investors €101 million plus post-award interest. Spain resisted the application on the basis that it was immune from the jurisdiction of the Australian courts under the Foreign States Immunities Act 1985 (Cth) ('FSI Act').[3]

The primary judge of the Federal Court delivered a judgment in favour of the Investors.[4] The judge found that Spain had waived its immunity from recognition and enforcement of the award under the FSI Act because it had submitted to the jurisdiction of the Australian courts by agreement, specifically by its ratification of the ICSID Convention.[5] However, the judge held that this did not amount to a waiver of its immunity from execution of the award. Accordingly, the judge ordered Spain to pay the €101 million it owed.

On appeal,[6] the Full Court of the Federal Court largely upheld the reasoning of the primary judge, although it made new orders with slightly less imperative wording,[7] which expressly upheld Spain's immunity from execution of the Award.[8]

Spain appealed to the HCA arguing that (i) it had not waived its foreign State immunity from the jurisdiction of the Australian courts by agreeing to the relevant articles of the ICSID Convention; and, alternatively (ii) if it had waived any immunity, then the jurisdiction of the Australian courts was limited to 'bare recognition' of the award, rather than both 'recognition' and 'enforcement'.[9]

Spain's position on sovereign immunity under the ICSID Convention

Spain's primary position before the HCA was that Article 54[10] of the ICSID Convention does not relate to the enforcement of arbitral awards against a State before foreign courts and, therefore, immunity from jurisdiction for the purposes of enforcement is preserved.

Spain relied on the waiver provisions in relation to the general and specific immunities contained in sections 10(2) and 31(1) of the FSI Act.[11] Spain argued that it was an established principle of international law that waiver of State immunity must be express, and not implied. In other words, Spain argued that under section 10 of the FSI Act, agreement to an international treaty will only amount to a waiver of immunity from the jurisdiction of Australian courts if the wording of that treaty expressly states that immunity is waived.  

Spain submitted that Article 54 of the ICSID Convention does not contain clear words expressly waiving immunity from recognition or enforcement proceedings in foreign courts. Thus, Spain argued that a foreign State will not automatically waive its immunity merely by virtue of being a Contracting State of the ICSID Convention and agreeing to Article 54.

Based on its reading of Article 54, Spain considered that a separate express waiver of immunity would have been required for a foreign State to submit to the jurisdiction of the Australian courts in proceedings brought by an investor seeking recognition and enforcement of an arbitral award.[12]

Spain also argued that the main reason for including Article 54 in the ICSID Convention was to ensure that Contracting States are able to obtain effective remedies against private investors.[13] Therefore, while an express waiver would not be required when a State starts recognition and enforcement proceedings against an investor before a foreign court, the same is not true when the investor is suing the State.

Spain also observed that, under Article 54(3), execution is governed by the domestic laws of the State where the execution proceedings are commenced and that Article 55[14] separately preserves foreign State immunity from execution. In this regard, Spain argued that the content of Article 55 is redundant, and that no specific waiver of immunity from execution can be inferred from its content. Spain's position is that Articles 53 and 54(2) do not include a reference to execution, which is governed, according to article 54(3), by the laws of the relevant jurisdiction. Thus, the immunity from execution would also be ruled by those domestic laws.

In the alternative, Spain argued that Article 54 only includes a waiver of immunity with regard to recognition proceedings, but not enforcement proceedings. This was in part based on a linguistic analysis of the French and Spanish texts of the ICSID Convention, in which the words exécution and ejecución are used interchangeably to refer to 'enforcement' and 'execution'. Spain's secondary argument was that the foreign State would only have waived its immunity for the purpose of proceedings in Australia seeking recognition of an award as binding, but not in proceedings seeking enforcement as though the award were a judgment of an Australian court.

Finally, Spain also included in its submissions a brief and insufficiently developed reference to the Court of Justice of the European Union ('CJEU') Case C-741/19, Republic of Moldova v Komstroy, 2 September 2021 ('Komstroy judgment').[15] In that case, the CJEU applied the earlier decision issued in Case C-284/16, Slovak Republic v Achmea BV, 6 March 2018 ('Achmea'),[16] and decided that the agreement to arbitrate contained in the Energy Charter Treaty was not applicable to intra-EU investment disputes.[17] Spain argued that the HCA was required to take note of the Komstroy judgment in deciding whether or not Spain had waived its immunity from the jurisdiction of Australian courts under the FSI Act.

Reasoning of the High Court of Australia

The HCA dismissed both arguments submitted by Spain, holding that:

• Spain's agreement to Articles 53, 54 and 55 of the ICSID Convention amounted to a waiver of foreign State immunity from the jurisdiction of Australian courts; and
• Spain's submission to jurisdiction extends to 'recognition' and 'enforcement' (but not 'execution') of an award issued under the ICSID Convention.[18]

(1) Waiver of immunity from jurisdiction under the ICSID Convention

Firstly, the HCA Decision addressed whether or not a waiver of immunity by agreement to a treaty must be express, as Spain argued in its primary position. According to the HCA, the main difficulty here is the 'lack of clarity in legal discourse generally about what is meant by “express" meaning'.^[19]

The HCA accepted that the need for express waiver was a well-established 'rule' of international law, citing the International Court of Justice in Case Concerning Armed Activities on the Territory of the Congo,[20] and various other international law authorities. However, the HCA recognised a very subtle difference between the meaning of 'express' as advanced by Spain (namely that the words of the treaty themselves must actually say that immunity is waived) and the idea that the words of the treaty must 'express' waiver.[21] The HCA's interpretation was that the insistence by international authority that a waiver of immunity in an international agreement must be 'express' only requires that the waiver be derived from the written words of the treaty. That derivation can be by implication, as long as the implication is clear from the words used and the circumstances surrounding the matter.[22] The HCA stated that the rule should not be understood as denying the ordinary and natural role of implications in elucidating the meaning of the express words of the treaty.[23]

Based on this interpretation of the international principle, the HCA Decision concluded that there is no reason to interpret section 10(2) of the FSI Act in a way that precludes the possibility of a waiver of immunity being ascertained through implication inferred from the express words of a treaty, after having analysed the specific circumstances and purpose.[24] The HCA Decision therefore further concluded that there is no basis – as a matter of Australian domestic law – to exclude the possibility of a waiver being implied by the express words of a treaty.

Despite the above, the HCA Decision also acknowledged that a high level of clarity and necessity are required in order to conclude that a foreign State has waived its immunity in a treaty by implication. The reason for this high standard is that the consequences of this waiver are substantial. Specifically, the HCA found that the mere fact that a State 'is a party to an agreement the proper law of which is the law of Australia' is not sufficient to waive immunity from jurisdiction.[25] However, section 10(2) of the FSI Act expressly refers to submission (which implies waiver) 'by agreement'. The HCA therefore considered that in this case the high standard had been met, because the waiver contained in section 10(2) of the FSI Act was 'unmistakeable'.[26]

The HCA therefore concluded that Spain's agreement to Articles 53, 54 and 55 of the ICSID Convention amounted to a waiver of its sovereign immunity from the jurisdiction of Australian courts.

(2) Extension of the immunity from jurisdiction to local execution proceedings under the ICSID Convention

The words and structure of the relevant provisions of the ICSID Convention (namely Articles 53, 54 and 55) were paramount in determining the extent of the waiver. The HCA recognised that domestic principles of interpretation (which may differ between jurisdictions) do not govern the interpretation of international treaties. Rather, the treaty should have the same meaning for all Contracting States and its interpretation is governed by the Vienna Convention on the Law of Treaties, 1969.[27] That Convention specifically allows reference to the travaux préparatoires in cases of ambiguity or obscurity.

The HCA observed that in the international arbitration world, 'recognition', 'enforcement' and 'execution' are often 'used in vague, overlapping and even interchangeable senses.' However, each is clearly to be afforded an individual functional meaning under the ICSID Convention. Put simply, the HCA held that the respective meanings of the terms are as follows:

1. Recognition: an obligation on the Contracting State to recognise the whole award 'as binding.'
2. Enforcement: an obligation on the Contracting State to enforce the pecuniary obligations of an award within its territories 'as if [the award] were a final judgment of a court in that State.'
3. Execution: an obligation on the Contracting State to seize the foreign State's property and sell it to force compliance with the pecuniary obligations of an award.

Article 54(1) imposes the obligations of recognition and enforcement (but not execution) on a Contracting State. Article 54(3) deals with execution separately, establishing that it will be governed by the relevant laws of the State in which execution is sought. Article 55 then contains an express disclaimer that Article 54 must not be construed as in any way derogating from a foreign State's immunity from execution. The HCA was of the opinion that this structural distinction (read in context) made it quite clear that immunity from execution was preserved, but that immunity from both recognition and enforcement was not. Accordingly, jurisdictional immunity from recognition and enforcement could indeed be implicitly waived by agreement having regard to the express words of those provisions.

The HCA referred to the discussions during the travaux préparatoires of the ICSID Convention to confirm and support its interpretation of Articles 53, 54 and 55.[28] The HCA concluded that the documentary evidence from the drafting stage of the ICSID Convention showed a clear intention to establish an obligation on the Contracting State to 'equate an award rendered pursuant to the Convention with a final judgment of its own courts. It does not require them to go beyond that and to undertake forcible execution of awards rendered pursuant to the Convention in cases in which final judgments could not be executed.'[29]

The HCA also dismissed Spain's arguments regarding the meaning of recognition, enforcement and execution in the Spanish and French versions[30] of the ICSID Convention.[31]

The HCA said that no difference in meaning should exist between the different linguistic versions of the ICSID Convention. The French and Spanish versions need to be interpreted taking into account the 'background of the civilian process of exequatur.'[32] This process combines both the recognition and enforcement steps into one procedure. Thus, the purpose of the exequatur procedure is both to recognise the award and then grant the award the same status as a judgment of a domestic court.

According to the HCA, the real distinction is therefore between, on the one hand, 'recognition and enforcement by exequatur' in Article 54 and, on the other hand, 'enforcement' as execution in Article 55.[33] While Article 54 uses the concepts execution and ejecución to refer to the process of exequatur (the recognition and enforcement of the award), those words are used in Article 55 to refer to execution (i.e. the judgment's subsequent satisfaction, which is governed by domestic laws, including the applicable local law on foreign State immunity).

Accordingly, the HCA found no inconsistency between the various linguistic versions of Articles 53, 54 and 55 of the ICSID Convention.[34]

(3) The potential application of the decision in Republic of Moldova v Komstroy LLC

Finally, the HCA briefly addressed Spain's argument regarding the application of the decision in Komstroy judgment to the Investors' enforcement application.[35] The HCA considered that this decision was not relevant to the dispute, since the 'relevant agreement' to submit to the jurisdiction of the Australian courts arose from Spain's ratification of the ICSID Convention, rather than the ECT. According to the HCA, Spain's becoming a party to the Convention also implied its 'agreement as to the consequences of an award rendered pursuant to the ICSID Convention.'[36]

Decision of the High Court of Australia

The HCA concluded that:

1. Express waiver of foreign State immunity by agreement to a treaty can be derived from a very clear or 'unmistakable' implication from the words of that treaty, read in context. 
2. Recognition, enforcement and execution, as those terms are used in the ICSID Convention, are each separate concepts.
3. For the purposes of the FSI Act, by agreeing to Articles 53, 54 and 55 of the ICSID Convention, a foreign State expresses a waiver of its immunity from the jurisdiction of the Australian courts insofar as recognition and enforcement of an arbitral award are concerned. However, Article 55 preserves immunity against execution, i.e. further express conduct by the foreign State would be required to waive this additional immunity.

Conclusion

In light of the HCA Decision, foreign States cannot rely on their sovereign immunity in Australia to resist recognition and enforcement of arbitral awards made against them under the ICSID Convention. While it is too early to tell, investors with awards against foreign States in the European Union may increasingly look to Australia as a suitable alternative forum to seek enforcement of awards they have secured. Further, investors seeking recognition and enforcement of awards in other jurisdictions where immunity can be waived by agreement (as in the FSI Act) are likely to invoke the HCA decision when attempting to persuade the courts of those other jurisdictions to follow suit.

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[1] Kingdom of Spain v Infrastructure Services Luxembourg & Anor [2023] HCA 11 (12 April 2023) <https://eresources.hcourt.gov.au/downloadPdf/2023/HCA/11> accessed 29 May 2023.

[2] International Arbitration Act 1974 (Cth).

[3] Foreign States Immunities Act 1985 (Cth) <https://www.legislation.gov.au/Details/C2016C00947> accessed 29 May 2023.

[4] Eiser Infrastructure Ltd v Kingdom of Spain (2020) 142 ACSR 616.

[5] Specifically of Arts 53, 54 and 55.  

[6] Kingdom of Spain v Infrastructure Services Luxembourg Sarl (2021) 284 FCR 319.

[7] Namely, an order recognising the award as binding on Spain and an order that 'judgment be entered' against Spain for €101 million.

[8] Kingdom of Spain v Infrastructure Services Luxembourg Sàrl. [No 3] (2021) 392 ALR 443 at 450-51. 

[9] Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11, para 7.

[10] ICSID Convention, Art 54, reads:

(1) Each Contracting State shall recognise an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.

(2) A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose a copy of the award certified by the Secretary General. Each Contracting State shall notify the Secretary General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation.

(3) Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.

[11] Section 10(2) states: '(2) A foreign State may submit to the jurisdiction at any time, whether by agreement or otherwise, but a foreign State shall not be taken to have so submitted by reason only that it is a party to an agreement the proper law of which is the law of Australia.'; Section 31(1) states: '(1) A foreign State may at any time by agreement waive the application of section 30 in relation to property, but it shall not be taken to have done so by reason only that it has submitted to the jurisdiction.'

[12] Spain pointed out that it has been said that 'the rule that waiver of immunity by treaty must always be express is well established in international law'. See McLachlan, 'Pinochet Revisited' (2002) 51 International and Comparative Law Quarterly 959 at 961, fn 20 (fn 19 of the HCA Decision). 

[13] See fn 110 of the HCA Decision.

[14] ICSID Convention, Art 55, states: 'Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.'

[15] Republic of Moldova v Komstroy (2 September 2021) ECLI:EU:C:2021:655 <https://curia.europa.eu/juris/document/document.jsf;jsessionid=DB77CC6431E59037E0971A0E6A598C90?text=&docid=245528&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=694851> accessed 29 May 2023.

[16] Slovak Republic v Achmea BV (6 March 2018) ECLI:EU:C:2018:158 <https://curia.europa.eu/juris/document/document.jsf?docid=199968&doclang=EN> accessed 29 May 2023.

[17] An intra-EU investment dispute is a dispute between a member state of the European Union and an investor from another member state when the dispute concerns an investment by the investor in the first member state.

[18] HCA Decision, para 8.

[19] HCA Decision, para 23.

[20] Case Concerning Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda) [2005] ICJ Rep 168 at 266 [293], 19 December 2005.

[21] HCA Decision, para 23.

[22] HCA Decision, para 26.

[23] HCA Decision, para 24.

[24] HCA Decision, para 27.

[25] HCA Decision, para 28.

[26] HCA Decision, para 29.

[27] Vienna Convention on the Law of Treaties, 1155 UNTS 331, 8 I.L.M. 679, entered into force 27 January 1980.

[28] HCA Decision, paras 49-58.

[29] International Centre for Settlement of Investment Disputes, History of the ICSID Convention: Documents Concerning the Origin and the Formulation of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1968), Vol 2-2 at 963 [44]. See HCA Decision, para 57.

[30] All three texts are 'equally authentic and authoritative', per ICSID Convention, testimonium. See also Vienna Convention on the Law of Treaties (1969), Art 33(1).

[31] HCA Decision, paras 59-66.

[32] HCA Decision, para 62.

[33] The HCA Decision explains that this approach is consistent with the description by the Special Rapporteur in the Second Report on Jurisdictional Immunities of States and their Property to the International Law Commission, which quotes a decision of the Tribunal de Grand Instance of Paris from 1970 that described recognition proceedings as including enforcement, and more specifically all steps 'up to and including the procedure for granting an exequatur which was necessary for the award to acquire full force.' See fn 107, HCA Decision.

[34] The treatment of recognition and enforcement as terms that are similar but different from immunity from execution was also addressed by the Court of Cassation in SOABI (Seutin) v Senegal (see para 65, HCA Decision).

[35] A UK court has also recently rejected Spain's sovereign immunity arguments based on the CJEU's rulings in Achmea and Komstroy judgment, declaring that States must honour their international treaty obligations contained in the ICSID Convention and the Energy Charter Treaty. See J. Ballantyne, 'Spain fails to halt enforcement of intra-EU award in London' in Global Arbitration Review (2023) <https://globalarbitrationreview.com/article/spain-fails-halt-enforcement-of-intra-eu-award-in-london> accessed 8 June 2023.

[36] HCA Decision, para 79.