by Campbell Norton[1] and Jamie Calvy,[2] Clifford Chance
Introduction
On 12 April 2023, the High Court of Australia handed down its decision in Kingdom of Spain v Infrastructure Services Luxemburg S.à.r.l.[3] The High Court has largely upheld the previous decisions of the Federal Court by recognising an award issued under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).
This is the first High Court judgment concerning waiver of foreign State immunity under the Foreign States Immunities Act 1985 (Cth) (the Immunities Act) in connection with the recognition of an ICSID arbitral award. The judgment also discusses Australia’s interpretation of ‘recognition’, ‘enforcement’ and ‘execution’ under the ICSID Convention, where the interpretation of the latter has remained, until now, ambiguous.
Background
This case concerned an appeal from the Full Court of the Federal Court of Australia, where Spain sought immunity from the recognition of an ICSID arbitral award issued against it for violating the Energy Charter Treaty (1994) (ECT) in the sum of €101m.[4]
The award was originally ordered following the withdrawal of an investment subsidy offered by Spain, in connection with the Respondents’ investment into numerous solar projects. This policy, which was adopted by Spain following the global financial crisis, has led to well over 50 claims against Spain by foreign investors in renewable energy projects under the ECT, which provides for settlement of such investment disputes by international arbitration under the ICSID Convention.
The starting point for State immunity in Australia is section 9 of the Immunities Act which provides that “[e]xcept as provided by or under this Act, a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding”. An exception to this rule is found in section 10, which provides that a foreign State is not immune in a proceeding when it has submitted to the jurisdiction of the Australian courts – for example, by way of agreement. Section 3 of the Immunities Act defines ‘agreement’ as including “a treaty or other international agreement in writing”, as well as a contract or other agreement in writing.
The main issue in this case was whether, by agreeing to be bound by Articles 53, 54 and 55 of the ICSID Convention, Spain had submitted to the jurisdiction of the Australian courts by agreement and therefore waived its foreign State immunity from recognition, enforcement and execution of the award. Articles 53, 54 and 55 of the ICSID Convention establish the binding nature of awards, and provide for recognition, enforcement of such awards but do not affect a State’s potential sovereign immunity from the subsequent execution of these awards, as follows:
Article 53
(1) The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention. […]
Article 54
(1) Each Contracting State shall recognize 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) If an application for the revision or annulment of an award contains a request for a stay of its enforcement, the Secretary-General shall, together with the notice of registration, inform both parties of the provisional stay of the award. As soon as the Tribunal or Committee is constituted it shall, if either party requests, rule within 30 days on whether such stay should be continued; unless it decides to continue the stay, it shall automatically be terminated. […]
Article 55
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.
In summary, Article 53 provides that an award is binding on the parties; Article 54 requires Australia to recognise an award as binding and enables it to enforce the award as if it were a final judgment in the Australian courts; and Article 55 provides that Spain’s immunity from the subsequent execution of such an award is a matter of Australian domestic law (specifically Australian foreign state immunity law) and is not affected by the ICSID Convention.
The High Court found that Spain’s accession to the ICSID Convention, in particular, Articles 53, 54 and 55, was sufficient evidence of its agreement to accede to the jurisdiction of the Australian courts and waive its immunity from recognition and enforcement (but not execution) of ICSID arbitral awards.
Federal Court judgments
In the Full Federal Court appeal decision,[5] it was held that immunity from a recognition proceeding had been waived by Spain’s entry into the ICSID Convention (and concomitant agreement to Articles 54 and 55), although immunity from court processes of execution, and perhaps also from enforcement, had not, [6] and that the primary judge went too far in requiring Spain “to do something” beyond the court merely recognising the award. The Full Federal Court also concluded that:[7]
(1) the proceeding was properly characterised as a recognition proceeding in respect of the ICSID award;
(2) as such, it was a proceeding in respect of which Spain had, by acceding to the ICSID Convention, submitted to the jurisdiction of the Federal Court for the purposes of section 10 of the Immunities Act; and
(3) consequently, Spain was not immune from the proceeding by virtue of section 9 of that Act.
In doing so, the Full Federal Court drew a distinction, under the ICSID Convention, between recognition, enforcement and execution. The Court provided the following explanation of the three concepts:[8]
Simplistically, recognition refers to the formal confirmation by a municipal court that an arbitral award is authentic and has legal consequences under municipal law.
Enforcement goes a step further. It refers to the process by which a successful party seeks the municipal court’s assistance in ensuring compliance with the award (as recognised) and obtaining the redress to which it is entitled.
Execution refers to the formal process by which enforcement is carried out.
The Court noted that Article 54 distinguishes recognition proceedings from enforcement proceedings and does so in a way which is dichotomous. Therefore, as the proceeding was for the recognition of an ICSID award, Article 55 (which provides that Spain’s potential immunity from execution is not affected by the ICSID Convention) had no application. In providing further clarity on the overlap between recognition and enforcement, the Court noted that “[i]t is also possible, […] for a party to apply for enforcement of the award without applying for its recognition. […] whilst a party seeking recognition need not formally seek enforcement […], any application for enforcement, if granted, will necessarily entail recognition”.[9]In short, recognition can be applied for independently, whereas an application for enforcement, by necessity, involves recognition. Although the Court noted that Article 54(1) and (2) suggest a party may seek recognition of an award without seeking its enforcement, it gave no indication as to the circumstances in which a party might be motivated to do so.
The Full Federal Court had some difficulty with section 35 of the International Arbitration Act 1974 (Cth) which gives effect to the ICSID Convention, as it only provides that “[a]n award may be enforced in the Federal Court of Australia with the leave of that court as if the award were a judgment or order of that court”, with no reference to recognition.[10] The Court found that the proper construction of section 35 was that ‘enforced’ also includes ‘recognised’, because otherwise “it would leave the recognition procedure unaccountably missing from the provisions which itself would infringe Australia’s obligation” under the ICSID convention.
High Court Decision
In its appeal to the High Court, Spain submitted that the express words of Article 54 of the ICSID Convention did not amount to a waiver of its State immunity from Australian courts’ jurisdiction under the Immunities Act.
In reaching its decision, the High Court considered principles of international law and concluded that although a waiver of immunity must be ‘express’, this is not restricted to the traditional meaning of the word. Instead, it found that ‘express’ may be interpreted so as to permit inferences or implications which give effect to express provisions of a treaty, which amount to a waiver.[11]
Although their Honours reinforced the decisions of the lower courts, in that it was within their jurisdiction to recognise and enforce the arbitral award (that is, to determine an award is binding, and enter judgment of that award as if it were a ruling of a domestic court, respectively), they most importantly drew a distinction between those procedures and ‘execution’ – a distinction which until now had largely remained ambiguous. They distinguished execution as the means of enforcing an award.[12]
It bears noting that their Honours considered the apparent inconsistencies between English, French and Spanish texts of the ICSID Convention, in particular the fact that while the English text refers to recognition, enforcement and execution separately, the French and Spanish text both refer to enforcement and execution as exécution and ejecución respectively. Their Honours held that, properly read, there was no real difference between the English, French and Spanish texts of the ICSID Convention, in respect of the distinction between recognition and enforcement on the one hand, and execution on the other. Therefore, the Article 55 provision that in this case immunity from execution is a matter of Australian foreign state immunity law does not apply to enforcement.
Their Honours reiterated the Federal Court decisions in determining that, under Article 54, Spain had waived its immunity in relation to recognition and enforcement, but that this did not extend to execution. When contemplating the circumstances amounting to a waiver of immunity from execution, the Court stated that “[w]hether or not enforcement against a State party to an award can lead to execution is left entirely to be determined under the domestic law of the Contracting State concerning State immunity or foreign State immunity from execution.“.[13]
Ultimately, the High Court resolved that the judgments from the Federal Court amounted to orders of recognition and enforcement, and thus, Spain’s appeal was dismissed.
Conclusion/Takeaways
Overall, the importance of this case is fourfold.
First, together with other judgments it indicates the general pro-arbitration disposition of the Australian courts.
Second, it shows that ICSID awards must be recognised and enforced in Australia as if they were final judgments of the Australian courts, avoiding risks of enforcement under the New York Convention (under which the courts of member states have certain limited grounds for declining to enforce foreign arbitral awards). This means that ICSID awards potentially have greater enforceability than non-ICSID awards, in addition to the “World Bank factor” which ensures that most ICSID awards are either settled or voluntarily executed by the parties, due to ICSID being an organ of the World Bank, and the perception that failing to honour an ICSID award could impair the host State’s credibility with the World Bank and other financial institutions. These factors supplement the usual adverse political and economic consequences of States not complying with international arbitral awards, including the State’s sovereign risk increasing and therefore reducing its foreign direct investment and raising its borrowing costs, and potentially harming its trade relations with other nations.
Third, it confirms that international investors increasingly identify Australia as a favourable jurisdiction for the enforcement of arbitral awards against foreign States, even where the award in question is unrelated to Australia. The enforcement proceedings in this case were brought apparently on the sole basis that Spain held assets in Australia, against which the Investors could enforce their ICSID award – far away from the potential effects of the Achmea decision, which prohibited intra-EU investment treaty arbitration.
Finally, while the High Court’s judgment should generally comfort investors (as it provides reassurance that Australian courts provide a reliable avenue for the recognition and enforcement of international arbitration awards), investors should note that recovery of a sum awarded, under an ICSID award, requires a subsequent execution step, which will be a matter of Australian domestic law, and where a key question is likely to be whether Spain’s property in Australia is immune from execution of the award.
Consequently, the High Court’s decision may not be the end for Infrastructure Services Luxemburg S.à.r.l., which may yet face further objections from Spain in the form of an invocation of sovereign immunity, should it seek to execute the award in Australia.
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[1] Campbell Norton is a Graduate Lawyer in the litigation and dispute resolution practice at Clifford Chance
[2] Jamie Calvy is a Senior Associate in the litigation and dispute resolution practice at Clifford Chance, admitted in Australia and England & Wales (Solicitor Advocate)
[3] [2023] HCA 11.
[4] 2080 UNTS 95, Art 26.
[5] Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3.
[6] [2023] HCA 11, [6].
[7] [2021] FCAFC 3, [22]-[23] per Perram J (Allsop CJ and Moshinsky J agreeing).
[8] [2021] FCAFC 3, [26] per Perram J.
[9] [2021] FCACF 3, [29] per Perram J.
[10] [2021] FCAFC 3, [42] per Perram J.
[11] [2023] HCA 11, [27].
[12] [2023] HCA 11, [45].
[13] [2023] HCA 11, [44].