Foreign state immunity against the recognition and enforcement of an arbitral award: an important reminder of the New York Convention 'reservations'

Republic of India v CCDM Holdings LLC [2025] FCAFC 2

What you need to know

• The Full Court of the Federal Court of Australia recently set aside an application for the recognition and enforcement of an investment arbitration award against the Republic of India.
• The Full Court found that, despite it being a contracting state to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (New York Convention), the Republic of India had not waived its foreign state immunity under section 9 of the Foreign States Immunities Act 1985 (Cth) (Immunities Act) on the basis of a 'reservation' made by it to its ratification of the New York Convention.
• The Full Court found that India's submission to the jurisdiction of the courts of Australia under the New York Convention was limited by its reservation to the enforcement of awards concerning 'commercial' relationships and that the investment arbitration award in question was not commercial in nature.
• The decision is an important reminder for those seeking the recognition and enforcement of arbitral awards in Australia (and elsewhere) that careful consideration should be given to potential sovereign immunity issues.
• In particular, when enforcement is sought against a foreign state pursuant to the New York Convention, there should be close inspection of any reservations made by that state to its ratification of the Convention.  Such reservations may prove to be an important 'get out clause' for a sovereign immunity defence brought by the state.

Background of the dispute

The dispute arose out of an agreement between Devas Multimedia Pte Ltd (a telecommunications company) and Antrix Corporation Ltd (a corporation wholly owned by India) for the lease of space segment capacity in the electromagnetic spectrum on two satellites.  On termination of the agreement by the Indian Cabinet Committee on Security, the Mauritian shareholders of Devas Multimedia brought investment arbitration proceedings against India under the India-Mauritius bilateral investment treaty (BIT).

The arbitral tribunal found India liable for USD111 million plus interest and costs.  The Mauritian shareholders sought to enforce the award in Australia and other jurisdictions under the New York Convention.  The Convention provides that contracting states are required to recognise and enforce foreign arbitral awards, subject to very limited exceptions.  However, upon signing, ratifying or acceding to the Convention, a state may declare a reservation, which excludes or modifies the legal effect of certain provisions of the Convention or of the Convention as a whole in their application to the state.

India challenged the recognition and enforcement of the award in Australia, asserting sovereign immunity under section 9 of the Immunities Act.  It argued that, despite having ratified the New York Convention, it had not submitted to the jurisdiction of the Australian courts due to its reservation that the Convention would only apply to 'differences arising out of legal relationships … which are considered commercial under the Law of India'.  As the dispute involved India's conduct in its governmental capacity and not a commercial transaction or a like activity, India argued that the arbitral award did not concern a commercial relationship.  Further, India argued the award did not fall within the commercial transaction exception to immunity under the Immunities Act.

In October 2023, the Federal Court of Australia dismissed India's immunity claim at first instance on the basis that its status as a contracting state to the New York Convention constituted a 'clear and unmistakeable' submission to the jurisdiction of Australian courts in respect of the recognition and enforcement of arbitral awards.

Decision of the Full Court

The Full Court of the Federal Court allowed India's appeal of the first instance decision and set aside the proceedings for the recognition and enforcement of the award.  The principal issue in the appeal was whether, by ratifying the New York Convention, India had submitted to the jurisdiction of the courts of Australia under the Immunities Act for the enforcement of arbitral awards against it.

First, the Full Court considered whether India's submission to the jurisdiction of the courts of Australia was limited by its reservation to its ratification of the New York Convention.  In determining this issue, the Full Court applied principles of treaty interpretation under the Vienna Convention on the Law of Treaties (1969) and considered the application of Article III of the New York Convention, pursuant to which contracting states undertake to 'recognise arbitral awards as binding and enforce them'.  The Full Court found that India's reservation was a 'sufficiently equivocal expression' of India's intention not to waive foreign state immunity in respect of non-commercial disputes such that India had not waived sovereign immunity in a 'clear and recognisable' manner.¹

Second, the Full Court considered whether the award in question fell within or outside of India's reservation (i.e. whether it was an award with regard to 'differences arising out of legal relationships … which are considered commercial under the Law of India').  Neither party adduced evidence on this point, and as such the Full Court addressed the issue from the perspective of Australian law.² The Full Court noted that the 'differences' between the parties arose from the annulment of the underlying agreement and the BIT, neither of which the Full Court considered to be commercial in nature.  In particular, the Full Court noted that the annulment of the underlying agreement was determined by the Indian Cabinet Committee on Security and was stated to be for reasons of public policy.  Further, as the Mauritian shareholders were not parties to the BIT, and the BIT was in the realm of public international law and gave international law rights to private investors in India, the Full Court reasoned that the relationship between India and private investors was not a commercial one.  The Full Court accordingly found that the award was not with regard to differences that arose from a commercial relationship.

Distinguishing the Kingdom of Spain case

While India sought enforcement of the award under the New York Convention, investment arbitration awards can also be enforced under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (ICSID Convention) if the state party is a contracting state to that Convention and the relevant treaty provides for investment arbitration thereunder.  However, India is not a contracting state to the ICSID Convention.

In the Kingdom of Spain case,³ the High Court of Australia concluded that Spain had waived its immunity from proceedings in Australian courts to recognise and enforce an award under the ICSID Convention when it became party to that Convention (see our previous article here).

The present decision from the Full Court can be distinguished from the Kingdom of Spain case because:

• First, the Full Court noted that the obligation undertaken by Spain under the ICSID Convention to recognise the relevant award as 'binding' and to 'abide by and comply with the terms of the award' was not qualified in the way that India's obligation is qualified under the New York Convention due to its reservation.
• Second, the Full Court noted that there is no express preservation of foreign state immunity in some limited way under the New York Convention (similar to Article 55 of the ICSID Convention which preserves immunity of a foreign state in respect of execution only) and, accordingly, this does not give rise to an implication that immunity is not preserved in relation to matters outside that limitation.

Analysis

The decision serves as an important reminder of the complexities of enforcing arbitral awards against sovereign states.  It particularly underscores the importance of understanding and scrutinising any reservations made by a state to its ratification of the New York Convention if enforcement is sought under that Convention.  Indeed, the commercial reservation to ratification has been made by 51 contracting states.⁴

In this case, the Full Court found that India's reservation limited its submission to the jurisdiction of the Australian Courts under the New York Convention only in respect of the enforcement of awards arising from commercial relationships.  Consequently, the investment arbitration award — which the Full Court considered not to be commercial in nature — fell outside this scope, such that India had not waived its sovereign immunity regarding the enforcement of the award.  This highlights the necessity for investment arbitration award creditors to carefully consider any potential sovereign immunity defences that may be available to states.

These potential defences should always be considered on a jurisdiction-by-jurisdiction basis.  For example, whilst the Full Court in this case held that the investment arbitration award was not with regard to differences that arose from a commercial relationship, there have been courts in other jurisdictions that have found that investment arbitration awards are with regard to differences that arise from commercial relationships for the purposes of the New York Convention commercial reservation, such as in the United States of America⁵ and Canada.⁶ Careful consideration should also be given to the terms of the relevant investment treaty, noting for example that India's Model BIT released in 2016 addresses the potential enforcement uncertainty arising from its commercial reservation under the New York Convention by providing at Article 27.5 that '[a] claim that is submitted to arbitration under this Article shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention'.

It remains to be seen whether the respondent in this case will be applying to the High Court of Australia for special leave to appeal the decision.⁷  In any event, the decision represents a further important milestone in the development of the common law concerning the enforcement of arbitral awards in Australia.

Authors: Luke Carbon, Partner; Amy Cable, Senior Expertise Lawyer; Jordon He, Graduate.