Foreign States do not enjoy immunity from the registration of ICSID awards in the English Courts – article published in New Law Journal

In the combined cases of Infrastructure Services Luxembourg Sarl v Spain/ Border Timbers Limited v Zimbabwe [2024] EWCA Civ 1527, the Court of Appeal heard two cases involving challenges by the defendant States to the registration in the English Courts of awards rendered against them in ICSID arbitrations.  The challenges were brought on the basis of state immunity, but the Court held that, pursuant to the 1965 Convention on the Settlement of Investment Disputes between States and National of Other States (the “ICSID Convention”), they had waived their immunity.

Background

The ICSID Convention established the International Centre for the Settlement of Investment Disputes (“ICSID”) for the arbitration of investment disputes arising between one Contracting State and a national of another Contracting State.  A number of investment treaties, including bilateral investment treaties between two States, or multilateral treaties between several States (such as the Energy Charter Treaty (“ECT”)) contain provisions for any such disputes to be determined by ICSID arbitration.

The first case in this appeal involved an ICSID arbitration brought against Spain under the ECT in which the investor had been successful and was awarded over EUR 100m.  The second case involved an ICSID arbitration brought against Zimbabwe under the bilateral investment treaty between Zimbabwe and Switzerland in which Zimbabwe had been ordered to reinstate certain properties to the claimants and pay almost USD 30m in damages (or, in default of reinstatement, to pay c. USD 124m).

In both cases, the successful claimants applied to register the ICSID awards in the English court, pursuant to the Arbitration (International Investment Disputes) Act 1966 (the “1966 Act”), in order that they could be enforced as if they were judgments of the English court.  The registration orders were granted, and the States in both cases applied for the orders to be set aside, on the basis of s1(1) of the State Immunity Act 1978 (the “SIA”), which provides that a “State is immune from the jurisdiction of the courts of the United Kingdom” except as set out in the SIA.

The States further argued that there was no applicable exception to immunity for two reasons.

First, they argued that there had been no written submission to the jurisdiction of the English courts under s2 of the SIA.

Second, they argued that the arbitration exception under s9 of the SIA, which provides that a State does not enjoy immunity from jurisdiction in respect of proceedings relating to an arbitration to which the State has submitted, did not apply.  While this would normally be the exception which would permit registration of an ICSID award, the States argued that it did not in fact apply here as they had not agreed to submit the relevant disputes to arbitration.

In particular, Spain relied on the decisions of the Court of Justice of the European Union (“CJEU”) in Slovak Republic v Achmea BV (Case C-284/16) and Republic of Moldova v Komstroy LLC (Case C-741/19) to argue that the arbitration agreement in the ECT did not apply to disputes between one EU Member State and nationals of another (so-called ‘intra-EU disputes’), and that therefore the arbitration agreement upon which the investor had relied was invalid.  Zimbabwe did not challenge the validity of the arbitration agreement in the BIT but claimed that the dispute did not fall within it.

At first instance, both challenges were rejected, albeit for different reasons.  The States appealed to the Court of Appeal and their cases were heard together.

Court of Appeal’s Decision

The Court of Appeal (Sir Julian Flaux, Lord Justice Newey and Lord Justice Philips) first considered whether the general immunity in s1(1) did in fact apply.  This is because in the Zimbabwe case at first instance Dias J had decided that the SIA did not apply in proceedings for the registration of an ICSID award because this did not involve any adjudicative step on the part of the English court (as registration was more of an administrative task).  The Court of Appeal disagreed, and found that as the Court does still need to ensure that the requirements for registration are met, this was an adjudicative process, and so s1(1) does in principle apply to the registration of ICSID arbitration awards against a foreign state.

Having determined that the States did in principle enjoy immunity, the Court then had to consider whether any relevant exception applied, namely whether there has been a written submission to jurisdiction or, if not, whether the arbitration exception in s9 would apply.

On the first of these two questions, the Court of Appeal considered, in particular, whether Article 54 of the ICSID Convention could constitute a submission to the jurisdiction for the purposes of s2 of the SIA.  Article 54(1) provides that “[e]ach Contract 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 judgement of a court in that State”.  This was implemented in the United Kingdom via the 1966 Act.

The Court of Appeal considered that “on a straightforward reading of article 54(1) of the [ICSID] Convention, each Contracting State has agreed with all other Contracting States that each will enforce ICSID awards, in the context that a Contracting State will necessarily be a party to each award”.  Drawing considerably on the decision of the High Court of Australia in respect of the same award against Spain that was before it, the Court rejected the argument that Article 54 referred only to awards against investors, or that it only extended to recognising and enforcing awards in their own jurisdiction.

The Court found that there was no ambiguity in the literal interpretation of the text, and that as such “Contracting States have submitted to the jurisdiction by virtue of article 54 of the [ICSID] Convention and therefore may not oppose the registration of ICSID awards against them on grounds of state immunity”.

Having decided in this manner, there was no need to consider whether or not s9 of the SIA would have applied.  However, the Court did note that, had it not found that there was a submission to jurisdiction under s2, it would have needed to have satisfied itself that there had been an agreement by the State to submit the dispute to arbitration for s9 to apply.  This is a helpful procedural clarification for future (non-ICSID) cases where s9 may be relevant.

Comment

The Court of Appeal’s clarification that States cannot rely on arguments of state immunity to oppose the registration of ICSID awards is welcome.  It is consistent with the spirit and purpose of the ICSID Convention, as well as decisions of other jurisdictions which have reached the same conclusion, and once again demonstrates the English court’s favourable approach to arbitration and its desire to preserve the finality and effectiveness of arbitral awards.

In this regard, the Court of Appeal confirmed that the regime for the registration of ICSID awards is expressly different to that for recognition of New York Convention awards.  While recognition of the latter may be refused by the English court in certain circumstances as set out in s103 of the Arbitration Act 1996 (such as an invalid arbitration agreement), there is no such discretion to refuse recognition of ICSID awards outside of the ISCID Convention procedure except in truly exceptional circumstances (eg fraud).

It is important to note, however, that this decision does not apply to execution of awards (ie, actually taking action against assets of the State), where a State’s immunity is unaffected by the ICSID Convention.  Indeed, as the Court of Appeal also noted, Article 55 of the ICSID Convention expressly preserves any such immunity that may exist.

As noted above, having found that Article 54 of the ICSID Convention constitutes a written submission to jurisdiction, the Court of Appeal did not need to deal with the s9 question.  As such, the Court did not need to consider the argument raised by Spain that that there is no valid arbitration agreement in the ECT in an intra-EU dispute, as it considered that it was not open to it to do so pursuant to the ICSID Convention regime.  This decision therefore reinforces the willingness of the English courts to enforce intra-EU investment arbitration awards, notwithstanding the CJEU’s decisions to the contrary.

As the UK is no longer an EU Member State, the Court of Appeal perhaps had no difficulty in taking this approach.  However, it is interesting to note that the Court confirmed that its interpretation of Article 54 of the ICSID Convention was in line with consistent interpretation by the courts in Australia, New Zealand, the United States, Malaysia and France.  In this regard, one would arguably expect to see all Contracting States to the ICSID Convention, including EU Member States, applying Article 54 in a similar way, which would allow the recognition of ICSID Awards even if they relate to intra-EU disputes.

It remains to be seen, however, whether any EU Member State courts when faced with the registration of an intra-EU ICSID award will actually follow suit.  By way of example, while France has traditionally recognised the mandatory nature of Article 54 of the ICSID Convention in respect of the recognition of ICSID awards, the Paris Court of Appeal in a decision on 19 April 2022 recently annulled an ICSID award on the basis that it was an intra-EU dispute.  Nonetheless, this decision of the Court of Appeal may help reinforce parties seeking to make such arguments.