In what has been a busy year for Australian courts considering issues of foreign State immunity, the Federal Court has rejected an attempt by India to prevent the recognition and enforcement of an arbitral award obtained against it by a set of foreign investors in investor-State dispute settlement (ISDS) proceedings.
In CCDM Holdings, LLC v Republic of India (No 3) [2023] FCA 1266 (Republic of India), India sought to have proceedings seeking recognition and enforcement of an arbitral award against it in Australia set aside on the basis of its entitlement to foreign State immunity under Australian law.
Justice Jackman rejected this argument and found that India’s ratification of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention or Convention) constituted waiver of its foreign State immunity for the purposes of the Foreign States Immunities Act 1985 (Cth) (FSI Act) in respect of the recognition and enforcement of arbitral awards sought to be enforced under that Convention.
The decision in Republic of India follows the April judgment of the High Court of Australia in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11 (Kingdom of Spain), where the High Court found that Spain’s ratification of provisions of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) constituted waiver of its foreign State immunity for the purposes of the FSI Act in respect of ICSID Convention awards. (See our previous alert.)
Key takeaway
Republic of India is the first substantive consideration of foreign State immunity in Australia post-Kingdom of Spain, albeit in relation to arbitral awards issued under a different framework. The decision indicates an emerging consensus among Australian courts that the voluntary submission by a State to international arbitration will constitute waiver of foreign State immunity, regardless of the regime under which the arbitral award is rendered.
This position reinforces Australia’s status as a friendly jurisdiction for the recognition and enforcement of arbitral awards and is likely to provide substantial comfort to investors that Australian courts will hold States to their bargain and vindicate the rights of investors under the ISDS regime.
It is also likely to attract investors to Australia seeking certainty regarding the enforcement of investment treaty arbitral awards as part of their enforcement strategy.
Background
The underlying arbitral proceedings (the Arbitration) concerned the rights of CC/Devas (Mauritius) Ltd and other investors, all of which were incorporated in Mauritius (the Devas Parties), under the Agreement between the Government of the Republic of India and the Government of the Republic of Mauritius for the Promotion and Protection of Investments (India-Mauritius BIT), a bilateral investment treaty. The Devas Parties were shareholders in an Indian company, which had entered into an agreement in January 2005 with an Indian State-owned enterprise for the lease of space segment capacity on two Indian satellites (the Agreement). In February 2011, a cabinet committee of the Indian Government terminated the Agreement, citing societal and defence needs.
In July 2012, the Devas Parties commenced arbitral proceedings against India. In accordance with the India-Mauritius BIT, the arbitration was held in accordance with the United Nations Commission on International Trade Law Arbitration Rules 1976 (UNCITRAL Rules), administered by the Permanent Court of Arbitration (PCA) and seated in The Hague, Netherlands. In July 2016, the Tribunal found that India’s termination of the Agreement constituted unlawful expropriation of the Devas Parties’ investment and breached their rights to fair and equitable treatment under the India-Mauritius BIT; the Devas Parties were awarded compensation in October 2020 (Quantum Award).
In April 2021, the Devas Parties instituted proceedings against India in the Federal Court of Australia,[1] seeking recognition and enforcement of the Quantum Award pursuant to section 8(3) of the International Arbitration Act 1974 (Cth), which gives effect to the New York Convention. India applied for the originating process to be set aside, asserting its entitlement to foreign State immunity under Australian law. That application is the subject of Republic of India.
The foreign State immunity regime
The Court first considered the principles applicable to waiver of foreign State immunity by reference to the High Court’s decision in Kingdom of Spain. We have previously discussed the applicable principles. At a high level, section 9 of the FSI Act provides a general rule of customary international law: foreign States are immune from the jurisdiction of Australian courts. This section forms the basis of India’s application in Republic of India. Certain exceptions exist to the general rule. For instance, a State may waive its immunity by submitting to the jurisdiction of Australian courts, whether through prior agreement or by some other manner (section 10(1)-(2)). Immunity may also be waived if the proceeding concerns a purely commercial transaction (section 11). These exceptions formed the basis of the Devas Parties’ response.
In Kingdom of Spain, the High Court found that a State’s entry into an international treaty can constitute waiver of its foreign State immunity. It held that such waiver can be explicitly stipulated in the terms of the treaty (such as through the use of the term “waiver”) or may be implied from the express terms of the treaty, but only if that implication is unmistakably clear from the words used and context.
Did India’s ratification of the New York Convention constitute submission to the jurisdiction of Australian courts?
The Court found that while Kingdom of Spain provides the relevant principles for determining whether waiver has occurred, it does not conclusively answer whether a State’s ratification of the New York Convention constitutes a submission to the jurisdiction of Australian courts under section 10(2) of the FSI Act. Given that the Convention does not use the term “waiver”, the task before the Court was to determine whether an implication of waiver could be drawn from the express terms of the Convention.
Characterising Article III of the Convention as a set of “promises made by each Contracting State to all other Contracting States” requiring such States to enforce arbitral awards, the Court found that “[if] India is party to such an arbitral award, it is an obvious and necessary implication that India is requiring Australia to recognise and enforce that award”. An assertion of foreign State immunity is inconsistent with that promise. In proceedings for recognition and enforcement of the arbitral award, all that an applicant is required to do in accordance with Article IV of the Convention is to tender an arbitration agreement that appears, on its face, to be valid. This arbitration agreement, along with the respondent State’s accession to the New York Convention, “is sufficient to establish the power of the Court to exercise jurisdiction over the foreign State.” The Court will not look into the underlying substance of the agreement, including questions of whether it is valid or enforceable under Australian law. These questions are to be deferred to a later stage, after the foreign State immunity claim has been determined.
To this end, the Court applied the interpretive rule in Article 31 of the Vienna Convention on the Law of Treaties (VCLT) to find that the text, context and purpose of the New York Convention supports a finding that India, by its submission to arbitration and ratification of the New York Convention, evinced a clear and unmistakable intention to submit to the jurisdiction of Australian courts in respect of the recognition and enforcement of arbitral awards, falling within section 10(2) exemption of the FSI Act. The State’s claim to foreign State immunity therefore failed.
Other points of interest:
- Comparison with ICSID Convention unhelpful: The Court rejected arguments by India that Kingdom of Spain should be distinguished on the basis of textual differences between the ICSID Convention and the New York Convention. The task before the Court was to determine whether waiver was effected by the New York Convention, not to measure its similarity to the ICSID Convention.
- New York Convention covers public and private activities of States: A substantial component of the judgment was devoted to India’s argument that the definition of “legal person” within the Convention only applies to States when they enter into private law or trade and commerce, as opposed to disputes concerning the conduct of the State acting in its governmental capacity. His Honour rejected this argument, finding that there is no textual basis for inferring such a limitation into the Convention; the application of the Convention is not limited only to awards involving commercial disputes. The Court then navigated the preparatory work of the Convention to confirm this position.
- Leading evidence of subsequent State practice: Article 31(3)(b) of the VCLT permits the interpretation of treaties by reference to the subsequent practice of States. The Court rejected an invitation by the investors to evince subsequent practice by reference to cases demonstrating the applicability of the New York Convention to disputes involving States. It observed that, given that none of those cases involved India, it was not possible for them to constitute subsequent State practice within the meaning of the VCLT.
- Questions of fraud not relevant at this stage: The Court refused to determine whether, as a matter of Indian law, the Agreement was void ab initio due to alleged fraud. It also refused to consider findings of fact and law made on this point by Indian courts. The correct time for this inquiry, the Court observed, would be in the substantive recognition and enforcement proceedings.
- Commercial transactions exemption does not apply to acts of State: The Court found that section 11 of the FSI Act, which provides that a foreign State is not immune from proceedings that concern commercial transactions, applies to proceedings to recognise and enforce arbitral awards. The Court did not, however, view India’s termination of the Agreement as constituting a “commercial transaction” or a “like activity” to a commercial transaction as it was an act of State by a executive policy-making body.
What’s next?
It is open to India to appeal the Court’s judgment to the Full Court of the Federal Court. Absent an appeal, the Court will now proceed to hear the substance of the investors’ application for recognition and enforcement of the arbitral award. While India is no longer able to claim immunity, it is open to India to resist recognition and enforcement of the award on the grounds outlined in the New York Convention and incorporated into Australian law by the International Arbitration Act 1974 (Cth). This may take the form of argument that the arbitration agreement is invalid, or that enforcing the award would be contrary to public policy (for example, because it was infected by fraud as India claims).
More generally, issues of foreign State immunity are set to continue to be litigated in Australian courts, with the High Court giving special leave to appeal in Greylag Goose Leasing 1410 Designated Activity Company v P.T. Garuda Indonesia [2023] NSWCA 134, a case considering whether a separate entity of a foreign State is able to be wound up under Australian law.
The main plaintiff in Republic of India is not one of the Devas Parties. Instead, it is CCDM Holdings, LLC (CCDM). The Devas Parties assigned CCDM, a Delaware company, and other companies their interests in the arbitral award held by them against India in December 2021. Justice Jackman approved the substitution of the Devas Parties in favour of CCDM and other assignees in May 2023: CC/Devas (Mauritius) Ltd v Republic of India (No 2) [2023] FCA 527. Nothing of substance turns on the assignment for the purposes of this alert.
