The Federal Court of Australia (FCA) has enforced two ICSID awards against the Kingdom of Spain (Spain) in Eiser Infrastructure Ltd v Kingdom of Spain.[1]  The FCA rejected Spain’s argument that it was immune from the jurisdiction of the Australian courts (asserted pursuant to sections 9 and 10(7) of the Foreign States Immunities Act 1985 (Cth) (Immunities Act)).

The investors (Investors) involved in two ICSID arbitrations applied under s35(4) of the International Arbitration Act 1974 (Cth) (IAA) to the FCA for the enforcement of the two awards.[2]  The International Convention on the Settlement of Investment Disputes between States and Nationals of other States (the ICSID Convention) is implemented in Australian law in the IAA. Article 54 of the ICSID Convention provides for recognition and enforcement of ICSID awards.

ICSID arbitrations – Energy Charter Treaty

Both arbitrations related, inter alia, to alleged breaches of the Energy Charter Treaty (ECT) as a result of regulatory changes made by Spain that affected the claimant’s investment in the renewable energy sector.  Both tribunals found that Spain was in breach of its obligations to provide fair and equitable treatment under the ECT and each tribunal issued an award granting compensation to the respective Investors.

Before any substantive steps were taken to enforce the award in Australia, Spain applied to ICSID for annulment of the awards.  At the same time, Spain requested a provisional stay of enforcement of the award.  The provisional stay was granted.

On 15 July 2019, the Investors applied to the FCA for a stay of their own enforcement proceedings due to the conflict at the time with the provisional stay granted by ICSID.  Spain had issued a conditional appearance to the enforcement proceedings for the limited purpose of challenging jurisdiction of the Australian courts on the basis of immunity pursuant to section 10(7) of Immunities Act.  Spain opposed the stay application, arguing that the FCA should first determine the immunity issue prior to exercising jurisdiction over Spain, including with respect to the requested stay.

On 1 August 2019, the FCA stayed the enforcement proceedings.  This stay was lifted on 25 October 2019, following a decision by the ad hoc committee appointed in the ICSID annulment proceedings to lift the provisional stay.  Hence, the FCA could proceed with enforcement and consideration of the foreign state immunity issue.

No immunity for enforcement of ICSID awards

The FCA held that Spain was not immune from the jurisdiction of the Australian courts with respect to enforcement of the ICSID awards.

Justice Stewart accepted the distinction between “enforcement” of an award under Article 54(1) of the ICSID Convention and “execution” of an award under Article 54(3) of the Convention.  He noted that Article 55 provides that domestic foreign state immunity laws apply to “execution” of an award, without referring to recognition or enforcement.

Justice Stewart acknowledged that the distinction between enforcement and execution was confirmed by the travaux preparatoires of the ICSID Convention as well as commentaries on the Convention (the only exception being a commentary by Professor Christoph Schreuer).  After careful consideration, Justice Stewart did not accept Spain’s argument that the French and Spanish text of Articles 54 and 55 did not draw this distinction.

In the present case, the investors had only applied for enforcement of the awards, not yet execution.  In any event, an award must first be enforced which involves the court issuing a judgment on the award.  The court judgment may then be executed against property of the award debtor.

Having determined that immunity does not arise on enforcement of an award under the ICSID Convention (and thus, the IAA), Justice Stewart then had to consider the potential conflict with immunity under s 9 of the Immunities Act.  Justice Stewart held that by becoming contracting parties to the ECT and the ICSID Convention (under which Spain was obliged to recognise and enforce awards), Spain had submitted to the jurisdiction of the Australian court for the purposes of enforcement. Thus, Spain had waived immunity on enforcement and was subject to jurisdiction of the Australian courts.

On this basis, Justice Stewart enforced both awards as judgments of the Australian courts.

Exceptions to immunity on execution

The distinction between state immunity from jurisdiction, enforcement and execution has long been recognised in a number of jurisdictions, including Australia.

In any event, there are further exceptions that may mean that Spain cannot rely on immunity even with respect to execution of the ICSID awards. As Justice Stewart acknowledged, immunity on execution could not be relied upon with respect to commercial property of Spain that is found in Australia.

Arbitration friendly approach

It is encouraging that the Australian Courts continue to take an arbitration friendly approach to applications to set aside and enforce awards, including awards made under the ICSID Convention.

The full text of the decision can be accessed here.

[1] Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157.

[2] [2019] FCA 1220.

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