Australia: Federal Court of Australia enforces ICSID Awards against Kingdom of Spain

The Federal Court of Australia has recently had cause to consider the enforcement of two investor-state arbitration awards against the Kingdom of Spain in circumstances where Spain asserted that it is immune from the jurisdiction of the Federal Court.

Eiser Infrastructure Ltd v Kingdom of Spain¹ is the judgment in relation to two applications for recognition and enforcement of two arbitration awards made against Spain under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID). ICSID is established under the ICSID Convention² which contains a provision that each contracting State (including Australia and Spain) shall recognise an award rendered under the ICSID Convention as binding and enforce the pecuniary obligations imposed by that award.³

In one application, the two applicants were Eiser Infrastructure Ltd, incorporated in England and Wales and Energia Solar Luxembourg S.à.r.l., incorporated in Luxembourg (Eiser Parties) seeking to enforce a €128 million award. In the other application, the two applicants were Infrastructure Services Luxembourg S.à.r.l., incorporated in Luxembourg and Energia Termosolar BV, incorporated in the Netherlands (Infrastructure Services Parties) seeking to enforce a €101 million award.

Before we consider the judgment in this case, the reader may question why companies from England and Wales, Luxembourg and the Netherlands would seek to enforce an award against Spain in the Federal Court of Australia. The author suggests there are three key reasons for this course of action, (1) Spain may have commercial assets in Australia against which the applicants could seek to execute an Australian court judgment, (2) the applicants may be concerned about the application of the recent decision in Achmea⁴ which may affect the enforceability of arbitration clauses in intra-EU investment treaties, and (3) Australia is a known arbitration friendly jurisdiction.

Original awards

The arbitration awards sought to be enforced in these proceedings both arose from the applicants' investments in solar power projects in Spain and alleged breaches of Spain's obligation to provide fair and equitable treatment under both the Energy Charter Treaty (ECT) and international law.

In particular, the applicants made investments in Spain after Spain had introduced Royal Decree 661/2007 (RD 661/2007) which:

'...sought to grant [renewable energy] producers stability in time, allowing them to do medium and long-term planning while obtaining a sufficient and reasonable return.'

RD 661/2007 introduced a feed-in-tariff (FIT) mechanism for renewable energy producers, amongst other incentives. In 2012, Spain made certain legislative changes which eliminated the right for the Claimants to receive a FIT.

The Eiser Parties alleged that they invested approximately €126 million in solar projects in Spain and the Infrastructure Services Parties alleged they invested approximately €139.5 million in the Spanish renewable energy sector. In separate arbitration proceedings submitted to ICSID⁵ with differently constituted tribunals, the applicants contended that the Spanish legislative changes violated Spain's obligations under the ECT. Both tribunals found that Spain had breached its obligations under the ECT to accord investors fair and equitable treatment.

The Eiser Parties were awarded €128 million plus interest. The Infrastructure Services Parties were awarded €101 million⁶ plus interest and a contribution to their costs.

Stays of awards

Spain applied to ICSID for annulment of both awards which resulted in the Secretary-General of ICSID provisionally staying the enforcement of both awards. The stay of the Eiser Parties' award was lifted in March 2018 prior to the commencement of the Federal Court proceedings. However, the Infrastructure Services award was provisionally stayed after Federal Court proceedings had been commenced. That stay was also lifted in October 2019 following which both applications were heard substantively and concurrently in the Federal Court.⁷ No decisions on Spain's annulment applications have been issued as at the date of the Federal Court judgment. Justice Stewart considered that, as the stays had been lifted, there was no obstacle (in this respect) to the recognition and enforcement of the awards by the Federal Court of Australia.

Federal Court Enforcement Proceedings

Justice Stewart summarised the question he was required to determine as follows:⁸

...is a foreign state immune from the recognition and enforcement of an arbitral award made under the [ICSID] Convention notwithstanding that the [ICSID] Convention inherently envisages arbitration awards being made against foreign states and it provides that such awards "shall" be recognised and enforced by Australian courts?

Immunities Act

An assertion of foreign state immunity under the Immunities Act 1985 (Cth) (Immunities Act) was Spain's only objection or defence to the applications. Section 9 of the Immunities Act provides 'Except as provided by or under this Act, a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding'.

Justice Stewart accepted that, on the face of it, Spain was entitled to immunity under section 9 of the Immunities Act. For the applicants to succeed, it was necessary for them to succeed on their argument that the ICSID Convention excludes a claim for foreign state immunity in recognition and enforcement proceedings, as distinct from execution of judgment proceedings.⁹

Justice Stewart first considered the Immunities Act and observed that the general immunity from jurisdiction and the exceptions thereto are in Part II of the Immunities Act headed 'Immunity from jurisdiction', whereas 'Enforcement' was the heading for Part IV of the Immunities Act.¹⁰ One of the exceptions to immunity from jurisdiction arises if a foreign state submits to the jurisdiction of the Australian court, by agreement or otherwise.¹¹ Importantly in the present context, 'agreement' is defined in the Immunities Act to include 'a treaty or other international agreement in writing'.¹² The applicants argued that by Spain being a party to the ECT and the ICSID Convention, it had submitted to the jurisdiction of the court.¹³ Justice Stewart accepted that by being a contracting party to the ECT and the ICSID Convention, Spain had agreed to the designated courts of the contracting states having the power and obligation to recognise and enforce awards, including against Spain itself.¹⁴ Spain had therefore submitted to the jurisdiction of the Federal Court of Australia and waived its claim to immunity from the jurisdiction.¹⁵

In relation to the enforcement provisions of the Immunities Act, Justice Stewart observed that those provisions would only apply if Spain was not immune from the jurisdiction.¹⁶ The enforcement provisions contemplate waiver of immunity and execution against commercial property and immoveable property, etc.¹⁷ Justice Stewart deduced from these provisions that the Immunities Act draws a distinction between immunity of a foreign state from jurisdiction and immunity of property of the foreign state from execution of a judgment or arbitral award.¹⁸

ICSID Convention

With that understanding of the Immunities Act, it was then necessary to consider the ICSID Convention, the relevant chapters of which have the force of law in Australia by virtue of section 32 of the International Arbitration Act 1974 (Cth).

The relevant articles of the ICSID Convention are set out below to assist in identifying the distinction the Court was required to grapple with in relation to recognition and enforcement of an award, on the one hand, and execution of a judgment, on the other.

Article 54

(1) 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. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.

(2) A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation.

(3) Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.

Article 55

Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.

(emphasis added)

The court identified three concepts 'at play': recognition, enforcement and execution.¹⁹ The Court found that:

1. recognition is a distinct and necessarily prior step to enforcement, but recognition and enforcement are closely linked;²⁰
2. an arbitral award is enforced by entering judgment on the award;²¹ and
3. an award cannot be executed (e.g. against the property of an award debtor), without first being converted in to a judgment of a court.²²

After analysing these articles, Justice Stewart concluded that 'it is only the foreign state immunity in relation to post-judgment execution that is preserved by Article 55 and there is no preservation of such immunity in relation to recognition or other forms of pre-execution enforcement'.²³

Spain argued that, if immunity was only a consideration after an ICSID award has been registered as a judgment, that would lead to an 'absurdity' because the judgment could be rendered unenforceable due to immunity grounds at the execution stage, leading to a 'zombie judgment'.²⁴ Justice Stewart did not accept this argument for a number of reasons but his Honour also demonstrated the practical example where, if Spain has commercial property in Australia, the judgment could be executed against that property as it would come under an exception to the Immunities Act.²⁵ Therefore, not all ICSID awards registered as court judgments would be 'zombie judgments'.

Vienna Convention on the Law of Treaties

Spain also mounted an argument that the Court should consider the Spanish and French versions of the ICSID Convention which, Spain argued, do not distinguish between enforcement and execution.²⁶ Justice Stewart noted that the Spanish, French and English versions of the ICSID Convention are accepted by the parties to the ICSID Convention as being equally authentic.²⁷ Applying the Vienna Convention on the Law of Treaties,²⁸ which provides that, where a comparison of the authentic tests reveals an inconsistency, the meaning which best reconciles the texts is to be adopted. After considering various commentaries on the ICSID Convention and case law from France, the United States and the United Kingdom, Justice Stewart was convinced that the distinction between recognition and enforcement on the one hand, and execution of judgment, on the other, was the only way to reconcile the authentic texts of the ICSID Convention.²⁹

Conclusion

Justice Stewart concluded that Spain's claim to foreign state immunity failed. His Honour made orders for Spain to pay the Eiser Parties their awarded amount of €128 million plus interest and for Spain to pay the Infrastructure Services Parties their awarded amount of €101 million³⁰ plus interest and a contribution to their costs.

Commentary

As mentioned above, it would really only make sense for the applicants in these proceedings to seek enforcement of these ICSID awards in Australia if Spain has commercial assets in Australia against which it could seek to execute an Australian court judgment given that commercial assets are excluded from the protection a claim for sovereign immunity may provide. Justice Stewart's judgment may set a significant precedent for other claimants who achieve a successful outcome from investor-state arbitrations and who identify assets in Australia that are potentially not protected by the Immunities Act.

One very current example of such is the Federal Court of Australia proceeding currently on foot, also before Justice Stewart, whereby Australian claimant Tethyan Copper Company Pty Ltd is seeking enforcement of a USD 4 billion ICSID award it obtained against the Islamic Republic of Pakistan.³¹ Pakistan has applied to the ICSID for annulment of this award and the Secretary General of ICSID has provisionally stayed enforcement of the Award until the annulment application is determined. This has meant that Justice Stewart has adjourned the last case management conference for this matter which was set to be held on 6 February 2020. The case management conference is currently scheduled for 7 May 2020. An ICSID committee will hold a hearing of Pakistan's plea for a confirmation of the stay order on 30 March 2020. If the ICSID committee determines to lift the stay order, the Federal Court proceedings may well proceed in the same manner as the successful applications against Spain considering in this article.

This decision is an encouraging sign for the enforcement of ICSID Awards in Australia.

Footnotes

¹ [2020] FCA 157.

² Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature 18 March 1965, 575 UNTS 159 (entered into force 14 October 1966);

³Ibid [ICSID Convention] art 54(1).

⁴ Slovak Republic v Achmea (Court of Justice of the European Union, C-284/16, EU:C:2018:158, 6 March, 2018.

⁵ Pursuant to Article 26 of the ECT.

⁶ After the tribunal issued a decision on rectification of the award on 29 January 2019.

⁷ For more information on the stay application in the Federal Court of Australia, see Russell Thirgood, Erika Williams and Jemma Keys, 'A Change in Investment Treaty Climate' (2019) 7(2) ACICA Review 39.

⁸ Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157 [2]; ⁹ Ibid [40]; ¹⁰ Ibid [46].

¹¹ Immunities Act 1985 (Cth) s 10(2); ¹² Ibid s 3(1).

¹³ Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157 [56]; ¹⁴ Ibid [178]-[182]; ¹⁵ Ibid [182]; ¹⁶ Ibid [59]; ¹⁷ Ibid [61]; ¹⁸ Ibid [63]; ¹⁹ Ibid [89]; ²⁰ Ibid [90]; ²¹ Ibid [91]; ²² Ibid [92]; ²³ Ibid [98]; ²⁴ Ibid [103]; ²⁵ Ibid [108]; ²⁶ Ibid [136], [138]; ²⁷ Ibid [82], [87] and [136].

²⁸ Vienna Convention on the Law of Treaties, opened for signature 23 May 1969, 1155 UNTS 331.

²⁹ Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157 [145]-[173].

³⁰ After the tribunal issued a decision on rectification of the award on 29 January 2019.

³¹ Tethyan Copper Company Pty Ltd v Islamic Republic of Pakistan (Federal Court of Australia NSD1749/2019, commenced 17 October 2019).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.