On April 12, 2023, the High Court of Australia (High Court) rendered a unanimous judgment affirming that a foreign state was not immune from proceedings seeking recognition and enforcement of an International Centre for Settlement of Investment Disputes (ICSID) arbitral award. This landmark decision provides welcome guidance on the interaction between Australia's sovereign immunity regime and its international arbitration legislation implementing the ICSID Convention.
Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V. v. Kingdom of Spain (ICSID Case No. ARB/13/31)
Kingdom of Spain v. Infrastructure Services Luxembourg S.à.r.l. & Anor  HCA 11
Factual and Procedural Background
During the 2000s, Spain legislated a regime of special feed-in tariffs to incentivize renewable electricity production. A pair of Luxembourgish and Dutch companies, Infrastructure Services and Energia Solar (Investors), invested almost EUR 140 million in 2011 to acquire shareholding in two concentrated solar power plants in Granada.
However, from 2012 onwards, a new Spanish government gradually suppressed and eliminated its incentivized tariff regime in an effort to combat the country's accumulating tariff deficit. In response, the Investors instituted ICSID proceedings against Spain in late 2013, alleging breaches of fair and equitable treatment as well as arbitrary/discriminatory conduct under the Energy Charter Treaty. In particular, they contended to have suffered "substantial losses to [their] investments ... due to [Spain's] fundamental alteration of the applicable legal and regulatory framework".
In 2018, the Investors prevailed and received a EUR 101 million award in their favor (Award). While Spain applied (but ultimately failed) to have it annulled, the Investors sought the Award's recognition and enforcement around the world, including in Australia, which Spain resisted on grounds of sovereign immunity. After losing at first instance and appeal before the Australian federal courts, Spain launched a final appeal to the High Court in 2022.
Sovereign Immunity in Australia
Like many leading common law jurisdictions, Australia subscribes to the restrictive doctrine of sovereign immunity, whereby a foreign state may become subject to its domestic courts and judicial processes even absent a voluntary submission to jurisdiction. The Foreign State Immunities Act 1985 (FSIA) is the principal statutory instrument, and operates according to the following key principles:
- Presumptive jurisdictional immunity: a foreign state
is deemed to be generally "immune from the jurisdiction of the
courts of Australia" unless an exception provided by the FSIA
is engaged (s. 9), such as:
- The state has agreed to waive immunity (s. 10), including by way of "a treaty or other international agreement in writing;" or
- The proceedings concern at least one of a limited set of subject matters (ss. 11-21). This includes, for instance, proceedings which concern a "commercial transaction";
- Presumptive execution immunity: a foreign state's property is likewise "not subject to any process or order [...] for the satisfaction or enforcement of a judgment, order or arbitration award" unless another provision of the FSIA is engaged (s. 30), such as if the property is found to be "commercial property" (s. 32).
Since the FSIA's inception, the High Court has adjudicated only a small handful of matters regarding sovereign immunity (e.g., PT Garuda v ACCC; Firebird v Nauru). Consonant with the restrictive doctrine, it has on each occasion found the respondent state not to be immune from the Australian courts' jurisdiction. Spain's appeal to the High Court is, however, the first instance to 'test' the interaction between (i) the FSIA's rules of jurisdictional immunity, and (ii) the ICSID Convention's provisions given force of law by Australia's International Arbitration Act 1974 (Part IV).
Spain's High Court Appeal
Spain relied on two technical lines of argument to maintain its jurisdictional immunity against recognition and enforcement of the Award, neither of which found any favor from the full bench of the High Court:
- First, that its signature and ratification of the ICSID Convention did not amount to an "express" waiver of immunity (Express Waiver Argument); and
- Second, that even if there were any waiver of immunity, this would only permit "bare recognition" of the Award, but not "enforcement" (Enforcement Immunity Argument).
Express Waiver Argument
Spain, invoking the international law principle that a waiver of rights by treaty must be "express" (see Armed Activities on the Territory of the Congo (Merits) at ), disputed whether it had effectively waived its jurisdictional immunity by contracting to the ICSID Convention. Focussing on Art. 54(1) therein, its essential argument was that the provision – i.e., that "Each Contracting State shall recognize an [ICSID award] as binding [...]" – "said nothing 'expressly' about a waiver of immunity from jurisdiction" so as to engage the relevant exception under the FSIA.
After reviewing a number of domestic and international authorities (including Pinochet [No. 3]), the High Court decided that the principle of "express" waiver merely demanded that "any inference of a waiver of immunity must be drawn with great care when interpreting the express words of that agreement in context." Properly construed in light of (i) Arts. 53 and 55 of the ICSID Convention, as well as (ii) the treaty's drafting history, object, and purpose (including "mitigating sovereign risk"), it concluded that the terms of Art. 54(1) contained an implicit but nonetheless clear waiver of jurisdictional immunity vis-à-vis domestic proceedings seeking recognition and enforcement of ICSID awards.
Therefore, contrary to Spain's suggestion, it was not necessary for a respondent state to have undertaken "separate conduct" in order to perfect a waiver of its jurisdictional immunity pursuant to the ICSID Convention.
Enforcement Immunity Argument
In the alternative, Spain contended that, even if it had waived any immunity by virtue of Art. 54(1), Australian courts could not take any steps to "enforce" the Award as if it were a domestic judgment, but could only "recognize" it as binding in the abstract. It premised this on a number of linguistic differences between the equally authentic English, French and Spanish texts of the ICSID Convention:
|Heading||Recognition and Enforcement of the Award||De la reconnaissance et de l'exécution de la sentence||Reconocimiento y ejecución del laudo|
|Art. 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 ...||Chaque Etat contractant reconnaît toute sentence rendue dans le cadre de la présente Convention comme obligatoire et assure l'exécution sur son territoire des obligations pécuniaires que la sentence impose ...||Todo Estado Contratante reconocerá al laudo dictado conforme a este Convenio carácter obligatorio y hará ejecutar dentro de sus territorios las obligaciones pecuniarias impuestas por el laudo ...|
|Art. 54(2)||A party seeking recognition or enforcement in the territories of a Contracting State shall furnish ... a copy of the award certified by the Secretary-General.||Pour obtenir la reconnaissance et l'exécution d'une sentence sur le territoire d'un Etat contractant, la partie intéressée doit en présenter copie certifiée conforme par le Secrétaire général.||La parte que inste el reconocimiento o ejecución del laudo en los territorios de un Estado Contratante deberá presentar ... una copia del mismo, debidamente certificada por el Secretario General.|
|Art. 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.||Aucune des dispositions de l'article 54 ne peut être interprétée comme faisant exception au droit en vigueur dans un Etat contractant concernant l'immunité d'exécution dudit Etat ou d'un Etat étranger.||Nada de lo dispuesto en el Artículo 54 se interpretará como derogatorio de las leyes vigentes en cualquier Estado Contratante relativas a la inmunidad en materia de ejecución de dicho Estado o de otro Estado extranjero.|
As emphasized in the table above, the French exécution and the Spanish ejecución have been variously rendered as "enforcement" (as in Art. 54) or "execution" (as in Art. 55) in English. (In contrast, all references to "recognize/recognition" correspond to the appropriate forms of reconnaître/reconnaissance and reconocer/reconocimiento.) In order to reconcile this range of terminology, Spain suggested that Art. 55's preservation of immunity from execution (which it has not waived) must also encompass immunity from enforcement.
The High Court did not accept that there were any material semantic differences in play. Examining the ICSID Convention's travaux préparatoires, as well as the jurisprudence of French courts (including SOABI (Seutin) v Senegal), it noted that exécution/ejecución were functionally polysemous from the perspective of civil law jurisdictions: "they are used in Art. 54 to refer to the process of exequatur or enforcement (granting an award the force of a judgment of the court), but are used in Art. 55 in the different sense of execution (subsequent effectuation of the judgment)."
Therefore, contrary to Spain's submission, there was no basis to imply in Art. 55 anything other than the preservation of a foreign state's presumptive execution immunity under domestic law.
Takeaway and Conclusion
The High Court's judgment will come as a relief to private parties who have prevailed against states in ICSID arbitration. It will probably give a boost to Australia as a recognition and enforcement destination, where there are already three separate live applications for similar relief in relation to other ICSID awards (RREEF Infrastructure; 9REN Holding; Watkins Holding). Incidentally, Spain, which has reportedly been pursued in at least 51 different renewable energy arbitrations, is also the respondent state in those three Australian proceedings.
What has not been directly addressed is presumptive execution immunity enshrined in Art. 30 of the FSIA and preserved by Art. 55 of the ICSID Convention. In Firebird v Nauru, the sole prior instance where this issue has come before the High Court (albeit concerning a foreign judgment), the respondent state lost the "battle" on recognition/enforcement but won the "war" on execution, thereby leaving little by way of further recourse through judicial processes. The ultimate fate of this Award before the Australian courts will thus likely have even greater ramifications on the ICSID Convention's utility as a system of foreign investment protection.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.