Recent recognition of international arbitration awards has been the subject of two recent landmark decisions in the Federal and High Courts, despite neither case involving parties or projects/investments in Australia.
In this article, we consider the decisions in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l.& Anor  HCA 11 (Kingdom of Spain) and CCDM Holdings, LLC v Republic of India (No 3)  FCA 1266 (Republic of India) and what they mean for the recognition and enforcement of international arbitration awards in Australia.
As described below, foreign state immunity from Australian court proceedings was at the centre of both cases.
The Foreign States Immunities Act 1985 (Cth) (FSIA) provides that a foreign state is immune from the jurisdiction of the courts of Australia in a proceeding except as provided for in that Act. The FSIA allows foreign states to submit to the jurisdiction of the Australian courts at any time, whether by agreement or otherwise, and a state is not immune insofar as the proceeding relates to a commercial transaction.
In both cases, foreign states (India and Spain) attempted to rely on the FSIA to resist recognition and enforcement of a foreign arbitral award under the International Arbitration Act 1974 (Cth) (IAA).
Australia is a party to two treaties/conventions relevant to these cases:
- the Convention on the Settlement of Investment Disputes between States and Nationals of other States 1956 (ICSID Convention), which is intended to encourage international investment by mitigating sovereign risk, and provides a framework for arbitration proceedings between investors and states, establishing the International Centre for Settlement of Investor Disputes (ICSID). It is given the force of law in Australia through the IAA.
- the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) which provides for the recognition and enforcement by the courts of contracting states of foreign arbitral awards . It is also given the force of law in Australia through the IAA.
Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l.& Anor  HCA 11
In a landmark judgement made on 12 April 2023, the High Court decided that an Award rendered by ICSID against Spain was capable of enforcement and recognition in Australia, despite Spain's reliance on a sovereign immunity defence.
Spain is a signatory to the Energy Charter Treaty (ECT), intended to promote investment in the energy sector. Infrastructure Services Luxembourg S.à.r.l and Energia Termosolar BV (Respondents) were investors for the purposes of the ECT, investing some €139.5 million in two solar plants located in Spain. However, changes to policies on renewable energy between 2012 and 2014 effectively reversed incentives given to investors.
In November 2013, the Respondents commenced arbitration proceedings in Spain under the ICSID Convention alleging Spain breached the ECT by failing to accord fair and equitable treatment to the Respondents' investments. The Tribunal found in favour of the Respondents and ordered Spain to pay the Respondents €112 million as compensation. This award was later rectified to €101million.
The Respondents brought proceedings in the Federal Court of Australia to enforce that award under section 35(4) of the IAA, which provides for the recognition and enforcement of investment convention awards.
Following decisions against Spain in the Federal Court and the Full Court of the Federal Court of Australia, Spain was granted leave to appeal to the High Court.
High Court decision
The High Court described the operation of each of the relevant Articles of the ICSID Convention: Article 53 relevantly provides for the binding nature of any award; Article 54 relevantly provides for recognition of the award by a Contracting State as binding, enforcement of the award within a Contracting State as if it were a final judgment of a court in that State and execution of the award which is to be governed by the laws of the State concerning execution. Article 55 relevantly provides that nothing in Article 54 shall be construed as derogating from the law in force in a Contracting State relating to immunity of a foreign State from execution.
The High Court found that:
- the waiver under section 10 of the FSIA need not be express as Spain had argued, but could be made impliedly, provided the waiver is unmistakeable and has a high degree of clarity and necessity. As such, Spain's agreement to the ICSID Convention, particularly Articles 53-55, amounted to a waiver of foreign state immunity from the jurisdiction of the courts to recognise and enforce a binding ICSID award
- although Spain's agreement to Articles 55-53 of the ICSID Convention constituted a waiver of state immunity from the jurisdiction of the courts of Australia to recognise and enforce, it did not constitute a waiver of the immunity from execution of the award. Whether or not enforcement against a State can lead to execution is left to be determined by the domestic law of the contracting state regarding state immunity
- the orders made by the Full Court were orders for recognition and enforcement and not execution, so should not be disturbed.
In reaching its decision, the High Court provided helpful guidance on the interpretationof these terms which, as the High Court noted, have been used in "vague, overlapping, and even interchangeable senses". The High Court referred to the definitions in the American Law Institute's proposed Restatement of the Law: The US Law of International and Investor-State Arbitration in summary:
- recognition - "the court's determination... that an international arbitral award is entitled to be treated as binding involving the court's "acceptance of the award's binding character and its preclusive effects".
- enforcement - "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".
- execution - "the means by which a judgment enforcing an international arbitral award is given effect...the execution process commonly involves measures taken against the property of the judgment debtor by a law-enforcement official...acting pursuant to a writ of execution."
After it was handed down, it was generally anticipated that the High Court's decision would be followed by subsequent courts, particularly in relation to the High Court's approach to implied waiver of sovereign immunity. And so it proved.
CCDM Holdings, LLC v Republic of India (No 3)  FCA 1266
On 24 October 2023, the Federal Court was asked to decide whether India had waived sovereign immunity by becoming a party to the New York Convention.
Under a bilateral investment treaty (BIT), India and Mauritius made various promises in respect of investments made in the territory of one contracting party by investors of the other. The BIT also provided for the resolution of disputes by international arbitration either under the ICSID Convention or binding ad hoc arbitration under the United Nations Commission on International Trade Law Arbitration Rules 1976 (UNCITRAL Rules).
Mauritian parties (Investors) purchased shareholdings in an Indian company and through that purchase, an indirect interest in an agreement with a company wholly owned by India under the control of the Department of Space. The Investors allege that the relevant agreement was annulled by an emanation of the Indian state, and commenced UNCITRAL arbitration in The Hauge in the Netherlands.
Following its decision on Jurisdiction and Merits, the arbitral tribunal issued a Quantum Award against India, and the Investors sought an order pursuant to section 8(3) of the IAA that the Quantum Award be enforced as if it were a judgment of the Court, together with orders that judgment be entered in amounts awarded.
India raised a service objection, and the Investors sought leave to file an Amended Originating Application and to serve that application on India through the diplomatic channel in accordance with the FSIA. India then filed an interlocutory application seeking orders that the Original Application be set aside, asserting foreign state immunity under the FSIA.
The investors sought to rely on the exceptions under sections 10 (2) and 11 of the FSIA, arguing that:
- having signed the New York Convention, India submitted to the jurisdiction of the Court within the meaning of section 10(2) of the FSIA in relation to proceedings for recognition and enforcement of a foreign arbitral award
- India's actions amounted to a commercial transaction in that it was a like activity in which the state has engaged within the meaning of section 11(3).
Federal Court Decision
The Federal Court concluded from the reasoning of the High Court in Kingdom of Spain, that the standard of conduct required for submission by agreement for the purposes of section 10(2) of the FSIA, requires either express words or an implication arising clearly and unmistakably by necessity from the express words used. The Federal Court decided:
- referring to international cases as well as Kingdom of Spain, the New York Convention supports a finding that India had submitted by agreement to the jurisdiction of the Court for the purposes of section 10(2) of the FSIA by way of a clear and unmistakeable necessary implication from the express words used
- India is agreeing by the terms of the New York Convention, that Australia will recognise and enforce awards within the scope of the convention. If India is a party to such an award, it is an obvious and necessary implication that India is requiring Australia to recognise and enforce that award
- in relation to the commercial transaction exemption under section 11 of the FSIA, the annulment of an agreement made by a body vested with the highest form of executive policy making in India, made for reason of public policy, could not be a commercial transaction for the purposes of the FSI. However the Court had already found that India had waived foreign state immunity for the purposes of section 10 (2) of the FSIA.
The Federal Court also interestingly noted that it agreed with the Investors' submission that at the stage of dealing with foreign state immunity, it is enough for the Applicants to tender "what appears on its face to be an arbitration agreement, and need not establish that the apparent arbitration agreement is valid or applicable", as was challenged by India. The Federal Court agreed that those are questions to be deferred to a subsequent stage of proceedings.
The text of the ICSD Convention, which specifically refers to the waiver of state immunity, and the New York Convention, which does not, are very different. Nevertheless, what these cases show is that Australian courts will closely consider the wording used and the purpose of the relevant treaty/convention to determine if waiver for the purposes of section 10(2) of the FSIA has been made either expressly, or through clear and unmistakeable implication by necessity from the words used.
These decisions enhance Australia's reputation as an arbitration friendly jurisdiction. Both the parties and the projects/investments from which the dispute arose were far from Australian shores, evidencing the reputation Australia has as a jurisdiction willing to recognise and enforce awards, even against foreign states.
It must be noted however that neither decision is final in the sense that the successful party under the respective award is now in receipt of sums awarded. Questions remain around the actual execution of the awards, and India has already appealed the decision of the Federal Court.
Nevertheless, these decisions show Australia should be a popular 'destination' for parties seeking recognition, enforcement and ultimately execution of an award against a state.
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