Introduction
One of the oft cited advantages of arbitration is the comparative ease of enforcement of arbitral awards. Most investment treaty arbitral awards are enforced in accordance with the ICSID Convention or the New York Convention.
One of the intentions behind the ICSID Convention is that any arbitral award under that convention can be enforced in any of the Contracting States, as if the award were a final judgment of the courts of the state in which enforcement is being sought. A number of recent decisions make clear that Article 54 ICSID Convention constitutes a waiver of state immunity in relation to the bringing of suits for the purposes of enforcing an award.
Alternatively, an investment award that does not fall under the remit of the ICSID Convention might be enforced in accordance with the New York Convention (which is typically relevant to the enforcement of commercial awards). The New York Convention also allows for recognition and enforcement of a foreign arbitral award as if it were a judgment of the enforcing court. It contains clear, permitted grounds for resisting recognition and enforcement of such an award. What remains less clear, is whether Article III New York Convention, which sets out the pro-enforcement bias of that convention in providing that "each Contracting State shall recognize arbitral awards as binding and enforce them", constitutes a waiver similar to that in Article 54 ICSID Convention.
The recent decisions discussed draw attention to some of the strategy concerns to consider at the investment stage, so as to benefit from treaty protections that provide a foreign investor with some comfort if it all goes wrong. As set out below, this is particularly relevant if a treaty between two EU states is called into play.
In considering the different recent decisions, it is useful to recall the three separate stages for securing the payment of an investment treaty arbitral award:
1. recognition, which is the court's determination that an international arbitral award is to be treated as binding;
2. enforcement, which is the legal process by which the award enjoys the same status as a judgment of the enforcement court; and
3. execution, which is the means by which a judgment enforcing the award is given effect, which usually involves measures taken against the property of the judgment debtor which, in investment treaty arbitration, is almost always a reluctant state.
Proceedings in the UK
Combining two first instance decisions, in Infrastructure Services Limited and another v Spain and Border Timbers and another v Zimbabwe [2024] EWCA Civ 1257, the English Court of Appeal recently confirmed that Contracting States cannot resist recognition of ICSID awards on grounds of state immunity.
In Infrastructure Services Luxembourg SARL v Kingdom of Spain, the claimants secured a €101 million ICSID award against Spain under the Energy Charter Treaty ("ECT") in conjunction with Spain's changes to the solar energy tariff scheme, which has been the subject of a number of investment treaty arbitrations in recent years. Spain argued – unsuccessfully – that the award could not be recognised because any intra-EU treaty arbitration is precluded under EU law and therefore the tribunal to the underlying arbitration did not have jurisdiction. This argument was dismissed by Mr Justice Fraser who determined that EU treaties do not override other treaties and do not override UK domestic law. Therefore, Spain could not rely on EU law on intra-EU treaties to dilute the UK's own international treaty obligations, such as those as a Contracting State of the ICSID Convention.
Equally unsuccessfully, Spain argued that it benefitted from sovereign immunity under s1(1) of the State Immunity Act ("SIA"). Instead, Fraser J agreed with Infrastructure Services that Article 54 ICSID Convention equates to a submission to the English courts by the Contracting States. This, in turn, constitutes a waiver of state immunity, as provided for in s2 SIA. Of note, Fraser J specifically noted the distinction in approach between the ICSID Convention and the New York Convention.
In Border Timbers Limited v Republic of Zimbabwe, the claimants secured a US$ 125 million ICSID award against Zimbabwe in relation to expropriation of land. Zimbabwe sought to set aside the award again under s1(1) SIA. Ms Justice Dias found that Article 54 ICSID Convention did not constitute a sufficiently clear and unequivocal submission to jurisdiction of the English courts for the registration of an ICSID award. Instead, Dias J determined that a foreign state is not prosecuted until the order granting registration is served on it and, therefore, the doctrine of state immunity had no application at this stage of the recognition process.
The Court of Appeal favoured Fraser J's approach to the issue of state immunity in relation to the registration of an ICSID award. The Court of Appeal agreed that state immunity applies as a matter of principle in relation to the recognition of an ICSID award and in accordance with s1(1) SIA. In turn, the Court of Appeal then considered whether the exceptions contained within the SIA apply to ICSID awards.
In doing so, the Court of Appeal analysed Article 54 ICSID Convention, finding that it does constitute a submission to the English courts for recognition and enforcement of ICSID awards, in line with the UK's status as a Contracting State of the ICSID Convention.
As such, the English Court of Appeal has confirmed that, as a matter of English law, this amounts to a waiver of state immunity for the registration of ICSID arbitral awards by the Contracting States in line with the purpose of s2 SIA. However, the Court of Appeal was clear that it could not determine whether Article III New York Convention constituted a waiver of immunity because it had not heard full arguments on this issue.
Proceedings in the US
In Blasket Renewable Investments LLC v. Kingdom of Spain, the US Court of Appeals for the District of Columbia Circuit addressed the enforceability of intra-EU investment awards based on the ECT against Spain. It affirmed that US courts have jurisdiction to enforce such awards under the Foreign Sovereign Immunities Act (“US FSIA”), despite Spain’s reliance on rulings from the Court of Justice of the European Union (“CJEU”) to contest the validity of intra-EU arbitration agreements, much like we saw in Infrastructure Services.
This case was unusual because Blasket Renewable held title and rights in awards against Spain subject to the ICSID Convention (NextEra Energy and 9REN Holding) and the New York Convention (AES Solar), as opposed to having been the original claimant in the underlying arbitrations.
The case involved three awards (i.e. NextEra Energy v. Spain; 9REN Holding v. Spain; AES Solar v. Spain) totalling over €360 million, which were issued in favour of investors from the Netherlands and Luxembourg, with title to the awards then transferred to Blasket Renewable. Much like in Infrastructure Services, Spain argued that the CJEU’s rulings invalidated the ECT’s investor-state dispute settlement mechanism for intra-EU disputes, and therefore, the arbitration agreements were void. Spain sought anti-suit injunctions in the Netherlands and in Luxembourg to prevent the investors from pursuing their enforcement efforts in the US. In response, the investors asserted that the US FSIA’s arbitration and waiver exceptions to immunity applied and asked the US District Court to issue 'anti' anti-suit injunctions preventing Spain from seeking anti-suit injunctions in foreign courts.
At first instance Judge Chutkan found that the court has jurisdiction under the US FSIA’s arbitration exception in NextEra Energy and 9REN and granted the 'anti' anti-suit injunction. In contrast, with respect to the AES Solar award (which had also been assigned to Blasket Renewable), the US District Court, found that Spain was immune under the US FSIA and granted Spain’s motion to dismiss the case. This resulted in an inconsistent interpretation of the US FSIA arbitration exception on immunity from jurisdiction at the US District Court level.
On appeal, Spain contested the District Court’s jurisdictional rulings in NextEra and 9REN, while investors sought to overturn the dismissal in Blasket, as it related to AES Solar.
The US Court of Appeals focused on the existence of the arbitration agreement. It held that the US FSIA’s arbitration exception applied because the ECT constituted an agreement to arbitrate for the benefit of private investors. Whether such arbitration agreement covered intra-EU investors was a question of the scope of the agreement, not its existence. The US Court of Appeals thus confirmed the first instance rulings in NextEra and 9Ren, while reversing the first instance ruling in Blasket, as it related to AES Solar. In so doing, the US Court of Appeals has adopted a uniformed interpretation of the US FSIA, interpreting the arbitration exception to immunity from jurisdiction more broadly, which brings greater certainty to foreign investors seeking to enforce investment treaty awards in the US.
Proceedings in Australia
A decision in 2023, also in relation to the arbitration between Infrastructure Services Luxembourg and Spain, confirmed Australia's position that a Contracting State to the ICSID Convention has, in its ratification of the ICSID Convention, waived sovereign immunity in Australia. This is an important decision because, partly in light of the intra-EU debate (on which Spain has sought to rely), Australia has become an increasingly attractive jurisdiction for enforcement of investment treaty arbitral awards.
However, a recent decision in relation to the enforcement of a treaty award under the New York Convention took a different approach. In Devas v India, the Federal Court of Australia allowed India's reliance on sovereign immunity in its resistance to the enforcement of a $111 million treaty award. The Federal Court of Australia found that the award did not arise from a commercial relationship. This decision overturned an earlier ruling to the contrary.
The appellate court found that India had made a clear reservation, having declared – when ratifying the New York Convention – that it would only apply to awards arising out of "commercial" relationships. In essence, India's stated position was that enforcement under the New York Convention was for international commercial arbitral awards and not for treaty awards. This was in line with India's general approach to treaty arbitrations and it is noteworthy that India is one of the most high profile states to have refrained from signing the ICSID Convention. India had also stated that this would be applied reciprocally.
Why are these decisions important?
As parts of the globe appear to be in a state of flux, reversing decisions of prior administrations, cancelling contracts for significant projects and amending regulations, reinforcing the value of investment treaties and the arbitral awards which arise out of these treaties is of significant value to existing foreign investors and to those foreign investors currently structuring future foreign investments.
These decisions indicate that Contracting States are likely to consider that immunity from suit has been waived in relation to the enforcement of an ICSID award. That consistency in approach across jurisdictions is important for clarity and uniformity of interpretation of the ICSID Convention across its Contracting States. As we have seen, the position is not so clearly established in relation to the New York Convention and, as such, may present some risks to foreign investors seeking to enforce under that convention.
It is important to stress that this decision does not – and cannot – have an impact on the execution of the award. It still remains for each state in which enforcement is being sought to determine what assets are and are not covered by state immunity. Neither Article 54 ICSID Convention nor Article III New York Convention can override local immunity laws.
It is therefore strategically important, when structuring a foreign investment to understand and consider what arbitral options are available should an investment go wrong and which assets are likely to be immune from execution within the relevant Contracting States.
