Clyde & Co |
Green light for enforcement of investor-state arbitration award in Australia
The High Court of Australia has delivered its highly anticipated decision in Kingdom of Spain v Infrastructure Services Luxembourg Sàrl  HCA 11. The decision recognised and enforced an ICSID arbitration award obtained by a renewable energy investor against the Spanish Government for €101 million.
The case is significant, as it is a rare Australian example of a contested application for recognition and enforcement of an investment treaty award and contains useful guidance on the interpretation of the ICSID Convention and the extent of foreign state immunity. The case is also topical given current debates about the legitimacy and transparency of investor-state dispute settlement and its increasing use as a forum for climate-related claims.
Background to the dispute
The dispute is one of many arising from the withdrawal of renewable energy subsidies offered by the Spanish Government in the early 2000s. Following the global financial crisis and a change of government, Spain started to withdraw these subsidies from 2013. This has led to more than 50 cases issued against Spain by foreign investors in renewable energy projects alleging breaches of the multilateral Energy Charter Treaty (1994) (ECT). The ECT allows investors to bring direct claims against contravening states and contains an arbitration agreement providing for settlement of disputes under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (ICSID Convention).
The present dispute involves investors from Luxembourg and the Netherlands who initiated an ICSID arbitration against Spain for alleged breaches of the ECT. In 2018, the investors obtained an ICSID award against Spain for €101 million (along with interest and part of their legal costs).
The award remains unpaid by the Spanish Government. The investors sued in the Federal Court of Australia seeking enforcement of the ICSID award against Spain.
As a result of developments in European Union case law and regulation, enforcement of awards arising from intra-EU disputes under the ECT and other treaties has become more difficult (or impossible) in EU jurisdictions. Hence investors are looking to non-EU jurisdictions, such as Australia, as venues for enforcement.
The primary purpose of the ICSID Convention is to promote the flow of private capital to sovereign nations by mitigating sovereign risk. The ICSID Convention is intended to provide certainty to private investors by facilitating the resolution of disputes in cases where a State defaults on its obligations undertaken towards investors in relevant bilateral or multilateral investment treaties.
The ICSID Convention has been given the force of law in Australia under the International Arbitration Act 1974 (Cth), s 32. Relevantly to this case:
Enforcement in the Australian courts
In 2019, the investors brought proceedings to enforce the ICSID award obtained against Spain in the Federal Court of Australia, pursuant to Article 54 of the ICSID Convention.
Spain resisted enforcement, asserting that as a foreign state it was immune from recognition and enforcement proceedings under the Foreign States Immunities Act 1985 (Cth). Section 9 of that Act provides that foreign states are immune from the jurisdiction of the Australian courts, except as provided for in that Act. One such exception is where the foreign state has submitted to the jurisdiction of the Australian courts, including by way of a treaty (Foreign States Immunities Act, ss 3, 10).
At first instance, Stewart J granted the investors’ application for enforcement, rejecting Spain’s plea of foreign state immunity with respect to recognition and enforcement of the award (but not execution) and ordering Spain to pay €110 million to the investors. On appeal, the Full Federal Court (Allsop CJ, Perram and Moshinsky JJ) also concluded that Spain had waived its foreign state immunity in relation to the recognition of the ICSID award in Australia and perhaps enforcement (but, again, not execution). The Full Court ordered that the award was binding on Spain and entered judgment against Spain for €101 million. However, the Court noted that any immunities of Spain against execution of that judgment were unaffected.
Spain brought a further appeal from the Full Federal Court to the High Court of Australia. In a unanimous decision of all 7 justices, the High Court dismissed Spain’s appeal, as set out in further detail below.
The High Court’s decision
The key issue in the appeal to the High Court of Australia was whether Spain could plead foreign state immunity as a defence to the recognition and enforcement of the ICSID award by the Australian courts. The Court held (in a single, joint judgment) that Spain’s agreement to the ICSID Convention amounted to a waiver of its immunity from recognition and enforcement of the award.
The key points emerging from the decision were:
1. Foreign state immunity was waived
Spain was found to have waived its foreign state immunity, despite the lack of any express wording in the ICSID Convention to this effect. Spain had argued that it was an established international law principle that waiver of state immunity via a treaty can only ever be express, not implied. Given that Australian statutes will be interpreted consistently with international law, so far as possible, Spain argued the same approach should be followed when considering waiver of immunity under the Foreign States Immunities Act, s 10.
The High Court rejected this argument:
2. Waiver included recognition and enforcement
The High Court found that Spain’s waiver of immunity extended to both recognition and enforcement of a valid and binding ICSID award in the Australian courts.
The High Court’s analysis distinguished between 3 concepts (which it said had been used in “vague, overlapping and even interchangeable senses” in some international arbitration contexts):
The High Court dismissed this argument. It found there was no difference between the English, French and Spanish versions of the ICSID Convention on a proper reading. The immunity preserved by Article 55 of the ICSID Convention extends only to execution. The immunity with respect to enforcement had been waived by Spain’s entry into the ICSID Convention.
As such, Spain could not resist enforcement of the award in the Australian courts. The judgment entered in the Federal Court against Spain for €110 million was upheld.
The decision was not concerned with any attempt to execute against assets of the Spanish Government in Australia. Any claim by Spain to immunity from execution remains unaffected. While foreign states are generally immune from execution of court judgments in Australia, there are exceptions in the Foreign States Immunities Act, including for execution against commercial property (s 32). It remains to be seen whether the investors are successful in obtaining execution against Spain of the Federal Court’s enforcement orders.
There are several important points to note arising from the decision:
 The Federal Court of Australia is designated as a competent court for this purpose by the International Arbitration Act, s 35(3).
 Eiser Infrastructure Ltd v Kingdom of Spain (2020) 142 ACSR 616;  FCA 157
 Kingdom of Spain v Infrastructure Services Luxembourg Sàrl (2021) 284 FCR 319;  FCAFC 3
 Kingdom of Spain v Infrastructure Services Luxembourg Sàrl (No 3) (2021) 392 ALR 443;  FCAFC 112
 See  FCAFC 3 at 
  HCA 11 at , citing the American Law Institute, Restatement of the Law: The US Law of International Commercial and Investor-State Arbitration, Proposed Final Draft (2019) § 1.1
 Foreign States Immunities Act, s 30