Novel approach taken by English court to sovereign immunity in enforcement of an ICSID award

What you need to know

• 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 state. ICSID arbitration is designed to provide a self-contained regime to resolve these disputes, with ICSID arbitration awards being directly enforceable in 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 Border Timbers Limited and Hangani Development Co. (Private) Limited v Zimbabwe [2023] EWHC 58 (Comm), in the context of the enforcement of an ICSID award in England, Mrs Justice Dias departed from a previous Commercial Court decision and held that Article 54(1) of the ICSID Convention could not be construed as a submission to the jurisdiction of the English courts in accordance with one of the exceptions in the SIA.
• However, the judge also made the "novel" finding that sovereign immunity was not relevant to the registration of an ICSID award in England. Therefore it was not necessary for one of the exceptions under the SIA to apply in order for an order registering and entering judgment on an ICSID award to stand.
• The decision raises uncertainty concerning the English court's approach to sovereign immunity in the context of the enforcement of ICSID awards, which should be resolved by the Court of Appeal later this year.
• In the meantime, and even with the conflicting court judgments, the practical effect is that an ICSID award can be registered in England without the question of sovereign immunity coming into play. That being said, a state can still rely on sovereign immunity at the stage of execution against assets.

Background to the dispute

The proceedings before the English court arose from an ICSID arbitration brought by the claimants against Zimbabwe under the Switzerland-Zimbabwe bilateral investment treaty, in which the claimants alleged that their land had been unlawfully expropriated during Zimbabwe's land reform programme.  In 2015, an ICSID tribunal awarded the claimants approximately US $125 million in compensation (the Award).  Zimbabwe applied to have the Award annulled under the ICSID Convention, but this was unsuccessful.

The Award not having been paid, in September 2021 the claimants applied to the English court without notice for registration and entry of judgment on the Award under the Arbitration (International Investment Disputes) Act 1966 (1966 Act), which implements the ICSID Convention into English law, and obtained an order recognising the Award and entering judgment.

Application to set aside the recognition and enforcement order

Zimbabwe applied to set aside the order on the grounds that it was immune from the court's jurisdiction by reason of s1(1) of the SIA.

The claimants argued that Zimbabwe could not rely on state immunity because the following two exceptions applied:

• The submission to jurisdiction exception in s2(1) SIA, which provides that a state is not immune as regards proceedings in respect of which it has submitted to the jurisdiction of the UK courts. Here, Zimbabwe had submitted to the jurisdiction of the English courts pursuant to s2(1) SIA by reason of Article 54 ICSID Convention. Article 54 includes the following wording: "Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a Court in that State".
• The arbitration exception in s9 SIA, which provides that, where a state has agreed in writing to submit a dispute to arbitration, there is no immunity as regards court proceedings relating to the arbitration.

The decision

The judge found that neither of the exceptions applied, but refused to set aside the recognition and enforcement order for a different reason not originally argued by the parties.

The s2 submission to the jurisdiction exception

The judge held that Article 54 of the ICSID Convention was not a sufficiently clear and unequivocal submission to the jurisdiction of the English court for the purposes of recognising and enforcing the Award against Zimbabwe.  The judge acknowledged that her decision might be inconsistent with the object and purpose of the ICSID Convention which was "to preserve state immunity only in respect of execution while providing for mandatory recognition and enforcement across the board".  However, she considered that it was the inevitable result of applying the clear wording of s2 SIA, consistent with English law.

The judge's decision on this point expressly contradicts the decision reached by a different judge in the Commercial Court last year in Infrastructure Services Luxembourg Sarl v Spain [2023] EWHC 1226 (Comm).  It also differs from decisions of the Australian, New Zealand and various US courts (albeit under different domestic sovereign immunity regimes), all of which have found that the provisions of the ICSID Convention have the effect of relinquishing sovereign immunity in relation to the recognition and enforcement of ICSID awards by those courts.

The s9 SIA arbitration exception

In relation to the arbitration exception, the judge held that s9 SIA required the court to make its own assessment of whether there was a valid arbitration agreement and that the dispute fell within its scope, rather than being bound by the ICSID tribunal's decision.  On that basis, the claimants had failed to establish the applicability of the s9 exception to immunity.  Again, it was noted that the court had reached the opposite view on this point in Infrastructure Services v Spain.

Whether state immunity is engaged at all on registration of an award under the 1966 Act

However, the judge went on to reach the "novel" conclusion with "no direct authority" that state immunity was not relevant at the stage of registration of an award under the 1966 Act at all, because the recognition and enforcement of an ICSID award does not involve the exercise of the court's adjudicative jurisdiction.  Again, in this regard, the judge expressly disagreed with the views of Mr Justice Fraser (as he then was) in Infrastructure Services v Spain.  The effect of this was that, despite the judge's decision that the exceptions under the SIA had not been established, it was held that Zimbabwe could not set aside the recognition and enforcement order.

Analysis

It is critical, both from a claimant perspective and for the overall legitimacy of the ICSID arbitration process, that, at the end of often lengthy and expensive arbitration proceedings, ICSID awards are capable of being enforced efficiently and to the fullest extent possible consistent with the terms of the ICSID Convention.  This decision, in holding (contrary to a previous judgment of the same court) that the sovereign immunity exceptions did not apply, arguably does not give effect to the object and purpose of the ICSID Convention with regard to enforcement. 

However, given the judge's finding that state immunity is irrelevant to the registration of an ICSID award under the 1966 Act, the effect of the judgment in practical terms is that an ICSID award can be registered in England without a successful defence of sovereign immunity.  It is important to note however that the judgment also confirmed that sovereign immunity can still be raised by a state at the execution stage.  This is consistent with Article 55 of the ICSID Convention, under which nothing in Article 54 is to derogate from the law in force in any contracting state relating to immunity from execution.

Permission has been given to Zimbabwe to appeal the decision to the Court of Appeal, and an appeal in Infrastructure Services v Spain on similar points (although that case also includes intra-EU issues) is due to be heard by the Court of Appeal in the summer of 2024.  Indeed, Mrs Justice Dias in Border Timbers noted that she had allowed herself "slightly more latitude" in reaching her conclusions because the Court of Appeal would soon be considering these issues. The Court of Appeal's decisions will certainly bring welcome clarity to this area. 

It is also notable that Lord Justice Fraser, who in January 2024 in Operafund Eco-Invest SICAV Plc and Schwab Holding Plc v Spain [2024] EWHC 82 (Comm) stayed applications concerning the enforcement of an ICSID award against Spain (pending the Court of Appeal's decision concerning his own judgment in Infrastructure Services referred to above), described those proceedings as an "unhappy case".  In this regard, Lord Justice Fraser referred to the "whole purpose" of the ICSID Convention and arbitration under it as being to "avoid the risk of lengthy enforcement proceedings" where claimants have obtained awards in their favour.  Again, the Operafund case involves intra-EU issues, but the judge's comments show a recognition of the critical importance of ease of enforcement to the ICSID regime and the risk that this could be undermined by an inconsistent approach taken by enforcing courts.

Want to know more?

Read our article on the decision of the High Court of Australia in Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. & Anor [2023] HCA 11 in which the High Court held that Spain had waived foreign state immunity from proceedings in the courts of Australia by entering into the ICSID Convention.