English Court of Appeal Aligns with Australian High Court on Denying Sovereign Immunity in ICSID Awards
04 November 2024
The English Court of Appeal has confirmed that states cannot resist the registration of Investor-State Investment Dispute (ICSID) awards on sovereign immunity grounds. The decision is largely consistent with the approach previously taken by the High Court of Australia on the same issue. This harmonisation between jurisdictions on the question of registration of ICSID awards against States brings welcome commercial certainty, particularly for investors structuring foreign investments, assessing the risk profile of such investments and developing enforcement strategies.
What you need to know
- In Infrastructure Services Limited and another v Spain, and Border Timbers and another v Zimbabwe [2024] EWCA Civ 1257, the English Court of Appeal has provided welcome clarity and resolved previous uncertainty as to the extent to which sovereign immunity can be claimed by states when a claimant seeks to have an ICSID arbitration award against that state registered in England.
- The key question is not whether sovereign immunity applies as a matter of principle (it does), but whether one of the exceptions contained in the State Immunity Act applies.
- Article 54 of the ICSID Convention (which records Contracting States' agreement to recognise and enforce ICSID awards) amounts to a submission by Contracting States to the jurisdiction of the English courts and a waiver of state immunity for registration purposes.
- As a matter of English law, by signing the ICSID Convention, Contracting States have waived their rights to oppose the registration of an ICSID award in the UK based on sovereign immunity.
- The ruling harmonises the approach between the UK and Australia, promoting a consistent legal framework for the enforcement of ICSID awards, and giving greater certainty for international investors, aiding in structuring foreign investments and developing enforcement strategies.
- That said, it remains open to states to assert sovereign immunity as a means of challenging attempts by investors to execute ICSID awards against state assets in England and Australia.
- It also remains to be seen whether the Court's denial of Zimbabwe's arguments against the construction of Article 54 as a submission to jurisdiction on the basis that it would open the door to similar arguments being advanced in respect of Article III of the 1958 New York Convention will be used to defeat claims of state immunity when investors seek to register non-ICSID investment arbitration awards in England.
Background to the dispute
The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) provides a mechanism through which investment disputes can be resolved by investors bringing arbitration proceedings directly against a Contracting State. ICSID arbitration is designed to provide a self-contained regime to resolve these disputes, with ICSID arbitration awards being directly enforceable in Contracting States as if they were a final judgment of a court in that state (Article 54(1) ICSID Convention).
Under s1(1) of the State Immunity Act 1978 (SIA), a state will have general immunity from the jurisdiction of the English courts, unless an exception stated in the SIA applies.
In two English High Court cases heard in 2023, two different judges (Fraser J in Infrastructure Services Luxembourg Sarl v Spain [2023] EWHC 1225 (Comm), and Dias J in Border Timbers Limited and Hangani Development Co. (Private) Limited v Zimbabwe [2023] EWHC 58 (Comm)) considered the question of whether foreign states which have ICSID arbitration awards made against them can rely on state immunity to prevent the registration of those awards against them in England.
Case Summaries:
- Infrastructure Services Luxembourg SARL v Kingdom of Spain: In 2018, the ISL claimants secured a €101 million award against Spain under the Energy Charter Treaty for changes to Spain's solar energy tariff scheme. Spain's attempt to set aside the award on state immunity grounds was dismissed by Fraser J, who ruled that the ICSID Convention, as enforced by the 1966 Act, prevented Spain from using the SIA to block the award.
- Border Timbers Limited v Republic of Zimbabwe: In 2015, the claimants obtained a US$125 million award against Zimbabwe under a bilateral investment treaty for expropriation of their land. Zimbabwe's application to set aside the award on state immunity grounds was dismissed by Dias J, who ruled that registering an ICSID award was a ministerial act fulfilling the UK's international obligations, not an adjudicative act engaging state immunity.
While both judges in these cases concluded that state immunity could not prevent registration, there was uncertainty because this conclusion was reached for different reasons in each case. Read our previous article in which we discussed further background and the novel approach taken by Dias J in the Border Timbers case.
Spain and Zimbabwe both appealed the respective decisions against them, and these appeals were heard together by the Court of Appeal, resulting in this recent landmark ruling on the scope of sovereign immunity in the context of ICSID awards. The Court of Appeal's decision has helpfully resolved the uncertainty that prevailed following the first instance judgments (as well as another High Court decision in Operafund Eco-Invest SICAV Plc and Schwab Holding Plc v Spain [2024] EWHC 82 (Comm)).
The English Court of Appeal decision
The Court of Appeal upheld the registration of the ICSID awards against Spain and Zimbabwe, addressing three central issues:
1. Application of sovereign immunity under s1(1) SIA: The Court of Appeal disagreed with Dias J's novel reasoning in Border Timbers, that s1 of the SIA was not engaged at all in the context of the recognition and enforcement of an ICSID award because the court merely performed a "ministerial act in compliance with the UK's international obligations under the ICSID Convention". The Court of Appeal, in agreeing with Fraser J's conclusion, stressed that the registration of an arbitral award, despite its straightforward nature in practice, was an adjudicative act, because it required a judge to examine the requisite standard as to the proof of authenticity and other "evidential requirements" under the Arbitration (International Investment Disputes) Act 1966. Accordingly, the express statutory sovereign immunity conferred by s1(1) of the SIA generally applies to the registration of an ICSID award against a Contracting State, unless an exception under the SIA applies.
2. Waiver of sovereign immunity because the ICSID Convention is a submission to jurisdiction: The Court of Appeal endorsed the High Court of Australia (HCA)'s reasoning and conclusion on the interpretation of Article 54 of the ICSID Convention. Read our previous article in which we discussed how the HCA interpreted the ICSID Convention. The Court of Appeal concluded that, on a plain reading, Article 54 of the ICSID Convention was a clear and equivocal submission to the jurisdiction of the English court for the purpose of s2 of the SIA (the submission to the jurisdiction exception), which is also consistent with the object and purpose of the ICSID Convention to encourage private international investment.
The Court of Appeal also rejected Zimbabwe's argument that reading Article 54 of the ICSID Convention as a submission to jurisdiction would entail a similar reading being automatically applied to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). In rejecting the argument, the Court of Appeal nevertheless noted the possibility of Article III of the New York Convention also being considered as a s2 submission to jurisdiction by a state, as is the position under Australian law.
3. Exception to state immunity in s9 of the SIA: Given its decisions above, the Court of Appeal did not consider it necessary to consider whether the exception to state immunity in s9 of the SIA applied in these cases, although made clear that s9 requires the court to satisfy itself that the relevant state had agreed in writing to submit the dispute in question to arbitration.
Comparison with the Australian approach
The HCA's decision and reasoning in Infrastructure Services Luxembourg SARL v Kingdom of Spain [2023] HCA 11, was persuasive in the Court of Appeal's decision making, and there is now a consistency of approach. However, there are some differences and nuances between the two decisions, which may reflect the different statutory regimes and contexts in which they were made. For instance:
- Recognition, Enforcement, and Execution: The HCA placed more emphasis on the distinction between recognition, enforcement, and execution of ICSID awards. It held that Article 54 only required recognition and enforcement, not execution, and that Article 55 preserved immunity from execution, not from recognition and enforcement. The English Court of Appeal did not explicitly adopt this terminology but did not contradict it either.
- Historical Context and Travaux Préparatoires: The HCA delved deeper into the historical context and the travaux préparatoires of the ICSID Convention. The English Court of Appeal referred to these preparatory works only briefly and in general terms.
- Implications for the New York Convention: The HCA considered the implications of its interpretation of Article 54 for Article III of the New York Convention, concluding that both articles amounted to a submission to jurisdiction and a waiver of state immunity. The English Court of Appeal left the door open but did not determine the issue.
Analysis
This pro-ICSID arbitration decision of the English Court of Appeal will be welcomed by international investors. The decision has clarified that states cannot resist the registration of an ICSID award against them in England on sovereign immunity grounds, consistent with the aim of the ICSID Convention to promote the recognition and enforcement of ICSID awards. By aligning with the approach of the Australian High Court (and other jurisdictions), the decision provides greater commercial certainty for international investors, ensuring that states cannot use sovereign immunity to resist the registration of ICSID awards.
However, an appreciation of the distinction between recognition, enforcement, and execution remains crucial, as states can still assert immunity against investors at the stage of execution against assets. This is consistent with Article 55 of the ICSID Convention, which provides that Article 54 does not override the laws in a Contracting State regarding sovereign immunity from execution, and highlights the importance of understanding the nuances of international arbitration and state immunity in structuring and enforcing cross-border investments.
It remains to be seen whether the Court of Appeal's obiter remark regarding the effect of the New York Convention as a submission to jurisdiction will be used by investors in receipt of non-ICSID investment arbitration awards to defeat sovereign immunity defences.
Authors: Emma Johnson, Partner; Jeremy Chenoweth, Partner; Elinor Thomas, Counsel; Erin Eckhoff, Senior Associate; Amy Cable, Senior Expertise Lawyer; Jenny Zhang, Associate.
