An arbitration tribunal has ordered Spain to pay a solar company $200 million in compensation for retracting its renewable energy subsidy promises. But how does a company enforce an arbitral award against a foreign government? And what does it have to do with Australia?

Governments want support from the private sector in charting the path to green energy, and this requires a predictable legal landscape that makes foreign companies feel their renewables investments will be a safe bet.

It is an understatement to say that climate change policy tends to fluctuate. This can scare foreign investors off, if it wasn't for the "rights" investors are provided with under bilateral investment treaties ('BITs') and free trade agreements ('FTAs').

Basically, countries promise foreign investors fair and equitable treatment. For example, guaranteeing investors protection from changes in the regulatory environment that decrease the value of an investment.

BITs and FTAs also give investors the right to sue a country through binding international arbitration.

Australia – and 162 other states – are contracting parties to the ICSID Convention, ('ICSID'). Under ICSID rules, an arbitral award is final and not subject to appeal. In the past 30 years there have been over 940 known treaty-based cases.

It is one thing to win an arbitral award, but how can investors make sure a state actually pays up?

This is the question Australia's Federal Court was grappling with in the landmark case of Eiser Infrastructure Ltd and Energia Solar Luxembourg SARL v Kingdom of Spain ('Eiser').

Here the two applicant solar companies relied on the multilateral Energy Charter Treaty ('ECT') to make claims against Spain. The companies received an ICSID award worth AU$205 million, and then asked our Federal Court to recognise the award as binding, and execute it against Spain.

A key issue will be whether Spain, in signing the ICSID Convention, and by agreeing to binding arbitration through the ECT, waived its sovereign immunity against enforcement of the award.

If the Court decides against Eiser, it might mean that ICSID awards lose their legitimacy – and that binding international arbitration isn't so binding after all.

One to watch. We'll keep you posted.

We do not disclaim anything about this article. We're quite proud of it really.