Introduction
Foreign investors who seek to enforce ICSID arbitral awards in Australia will welcome the High Court of Australia’s recent decision in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11 (Kingdom of Spain), where the High Court confirmed that Australian courts will recognise and enforce international arbitral awards rendered under the ICSID Convention.
In Kingdom of Spain, the High Court accepted that Spain’s entry into the ICSID Convention amounted to a waiver of foreign state immunity in respect of recognition and enforcement of ICSID arbitral awards. The High Court’s judgment means that ICSID awards against States will be recognised and enforced by Australian courts, consistent with Article 55 of the ICSID Convention. However, foreign state immunity from execution is preserved and subject to the relevant provisions of the Foreign States Immunities Act 1985 (Cth) (Immunities Act).
This decision of the High Court gives foreign investors comfort that arbitral awards obtained against foreign States in ICSID arbitration proceedings are enforceable in Australia and, more broadly, that investor-state dispute resolution remains an effective method for vindicating an investor’s rights against unlawful State interference.
This is positive news for investor-state dispute resolution which, despite its growing popularity throughout the 2000s and 2010s, has experienced a series of challenges and setbacks over the last five years in particular. Cases such as Philip Morris v Australia sparked public debate over the threat investment-treaty arbitration posed to a State’s right to regulate in the public interest; decisions from the European Court of Justice in Achmea and Komstroy ostensibly restricted the availability of claims under intra-EU BITs; and over the last few months, numerous States have expressed their intention to withdraw from the Energy Charter Treaty.
Key takeaways
This judgment clarifies that investors who are successful in ICSID arbitrations against States can seek both recognition and enforcement of awards in Australian courts. Although immunity from execution continues to apply (the scope of which remains an open question), investors can nonetheless seek recognition and enforcement of an ICSID arbitral award as part of a larger enforcement strategy, including to apply pressure on a State that is an award debtor. That is particularly salient in the context of this case, given that more than 20 arbitral tribunals have ordered that Spain pay a combined amount of compensation of approximately EUR 8 billion to various investors in Spain’s renewable energy sector.
Background
In June 2018, an arbitral tribunal constituted under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) awarded Infrastructure Services Luxembourg S.à.r.l. (Infrastructure Services) €101 million for Spain’s breaches of the Energy Charter Treaty arising out of its unwinding of a renewable energy subsidy scheme (Award).
Infrastructure Services then sought to enforce the Award against Spain in numerous jurisdictions around the world, including the Federal Court of Australia. Relying on section 9 of the Immunities Act, Spain objected to enforcement of the Award on the basis that it enjoyed foreign State immunity from the jurisdiction of the courts of Australia.
At first instance, Stewart J held that an exception to foreign State immunity applied, because Spain’s agreement to Articles 53-55 of the ICSID Convention constituted a waiver of its immunity from recognition and enforcement of the award (but not from execution against property).
On appeal, the Full Court of the Federal Court also found against Spain. Their Honours determined that immunity from recognition had been waived but immunity from execution processes had not, although the Full Court declined to conclusively decide whether immunity from enforcement had also been waived. Orders were made that the Award be recognised as binding on Spain, and that judgment be entered against Spain for €101 million (while noting that nothing "shall be construed as derogating from the effect of any law relating to immunity of [Spain] from execution").
The appeal to the High Court
Spain obtained special leave to appeal to the High Court, raising two key arguments:
- that Spain’s agreement to Articles 53-55 of the ICSID Convention did not involve any waiver of foreign State immunity from the jurisdiction of the Australian courts, because there was no “express” waiver;
- if there was waiver, Spain’s amenability to jurisdiction was limited to “recognition” of the award, not “enforcement”, whereas the orders made by the Full Court amounted to enforcement.
The High Court has now unanimously dismissed Spain’s appeal, upholding the orders of the Full Court.
The findings of the High Court
When is foreign State immunity waived?
As a starting point, section 9 of the Immunities Act provides a general regime of immunity: that foreign States are immune from the jurisdiction of Australian courts. This means that foreign States cannot be made a party to an Australian legal proceeding unless their immunity has been waived by submission to the jurisdiction, by prior agreement or by some other manner (section 10(2) of the Immunities Act).
Spain argued that waiver of foreign State immunity “by agreement” under section 10(2) arises only if the words of a treaty contain an “express” waiver, as opposed to an “implied” waiver.
The High Court considered that the Immunities Act should be interpreted consistently with the international legal principle that waiver of foreign State immunity by way of a treaty must be express. However, the High Court found that implications have an “ordinary and natural role” in determining the meaning of the express words of a treaty. Therefore, waiver of foreign State immunity by way of a treaty:
- can be explicitly stipulated in its terms (such as the express use of the word “waiver”); or
- can be implied from the express terms of the treaty, but only if that implication is clear from the words used and the context, including the objects and purpose of the treaty. It must be shown that the State had consented to jurisdiction in a clear and recognisable manner.
What do the terms “recognition”, “enforcement”, and “execution” mean?
Articles 53 to 55 of the ICSID Convention relevantly provide that:
- Article 53(1) - an ICSID arbitral award is binding on the parties, not subject to appeal, and to be complied with by the parties;
- Article 54(1) - each Contracting State is to recognise an ICSID arbitral award as binding and enforce the pecuniary obligations imposed by that award within its territories as though the award were a final judgment of a court in that State;
- Article 54(3) - execution of the award is governed by the laws concerning the execution of judgments in the State where execution is sought; and
- Article 55 – nothing in Article 54 derogates from the law of any Contracting State relating to foreign State immunity from execution.
Acknowledging that “recognition”, “enforcement” and “execution” had frequently been used vaguely and interchangeably, the High Court considered various international cases and treatises, and paid particular attention to the language and drafting history of the ICSID Convention to give meaning to these three terms. The High Court found that:
- “recognition” refers to the court’s determination that the arbitral award is binding (a key consequence being that the award has res judicata effect concerning matters already determined in arbitral proceedings);
- “enforcement” refers to “the legal process by which an international award is reduced to a judgment of a court that enjoys the same status as any judgment of that court”; and
- “execution” refers to the process of giving effect to a judgment enforcing an arbitral award (such as writs of execution against the property of the award debtor).
Concluding that the three terms as used in the ICSID Convention are analytically distinct, the High Court also rejected Spain’s argument (which relied on the French and Spanish texts of the ICSID Convention) that the terms “execution” and “enforcement” are interchangeable. The High Court held that Spain’s proposed interpretation would extend the scope of foreign State immunity in a manner inconsistent with the object and purpose of the ICSID Convention (which includes mitigating sovereign risk).
Did Spain’s agreement to the ICSID Convention amount to a waiver of foreign State immunity?
Spain submitted that because Article 54(1) of the ICSID Convention said nothing “expressly” about waiver of immunity, it could not be inferred that a foreign State had waived its immunity by agreeing to Article 54(1).
The High Court rejected this argument, observing that such an “agreement” was evident from the words of Articles 53-55: in particular, the provision in Articles 53 and 54(1) that awards are “binding” and the preservation in Article 55 of immunity from “execution” only (which reinforced the limits of Articles 53 and 54). The High Court determined that it would distort the terms of these Articles to require separate conduct constituting waiver before an award could be recognised and enforced against a foreign State.
The High Court also rejected Spain’s alternative argument: that Article 54 only contemplated waiver of immunity with regards to recognition, not enforcement (which similarly relied on a supposed interchangeability of the words “enforcement” and “execution” in the French and Spanish texts).
Accordingly, by agreeing to Articles 53-55 of the ICSID Convention, Spain had waived foreign State immunity from the jurisdiction of the Australian courts to recognise and enforce a binding ICSID arbitral award against it.
The authors would like to thank Rose Vassel, Annie Zou and Leo Li for their assistance with this article.
