Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l [2023] HCA 22

Andrew Orford  | Andrew Hales  |  Chris Hey  |  Isobel Carmody

Key takeout

• The High Court has confirmed that Australian courts will ‘recognise’ and ‘enforce’ international arbitral awards made against foreign states under the ICSID Convention.  
  
• By entering into the ICSID Convention, foreign state parties have waived immunity from the recognition and enforcement of ICSID arbitral awards.  However, they have not waived foreign state immunity from the ‘execution’ of awards (such as against property held in Australia).

Facts

Infrastructure Services Luxembourg S.à.r.l (ISL) obtained an arbitral award against the Kingdom of Spain (Spain) under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (ICSID Convention) for €101 million.  ISL brought proceedings in the Federal Court of Australia to enforce that award under the International Arbitration Act 1974 (Cth), seeking orders that Spain pay ISL €101 million together with interest on that sum.

Spain is a party to the ICSID Convention, meaning that Spain has agreed to:

• Article 53, which provides that an ICSID arbitral award is binding on the parties.
• Article 54, which requires a contracting state to recognise an ICSID arbitral award as binding, and enforce the award as if it were a final judgment of a court in that state.  That article also provides that execution of the award is to be governed by the laws of the state concerning execution.
• Article 55, which provides that nothing in Article 54 should be construed as derogating from the law in force in a contracting state relating to immunity of a foreign state from execution.

In Australia, the Foreign States Immunities Act 1985 (Cth) (FSI Act) provides that foreign states are immune from the jurisdiction of the courts in Australia except in particular circumstances, which include where the foreign state has submitted to that jurisdiction by ‘agreement’ (including by a treaty).

Spain argued that Australian courts could not ‘recognise’, ‘enforce’ or ‘execute’ the arbitral award as it had not waived immunity for the purposes of the FSI Act.  In the alternative Spain argued that, to the extent it had waived any immunity, it had only waived immunity in respect of recognition of the award.

Decision

The High Court held that:

• Spain’s agreement to Articles 53-55 of the ICSID Convention was a waiver of foreign state immunity from the jurisdiction of the courts of Australia for the purposes of recognition and enforcement of a relevant ICSID arbitral award, but was not a waiver of immunity from court processes for the execution of such an award; and
• the orders made by the Federal Court, including the order that judgment be entered against Spain for €101 million together with interest, were properly characterised as orders for recognition and enforcement of the binding ICSID arbitral award and accordingly the orders should not be changed by the High Court.

Implicit waiver of foreign immunity

Spain submitted that no waiver of immunity had occurred on the basis that under international law such waiver would need to be express. 

The High Court considered that the word express means something derived primarily from the content of the words expressed, while something that is implied is derived primarily by inference from the conduct of the parties to the agreement.  Therefore a requirement that a waiver be express should be understood as ‘requiring only that the expression of waiver be derived from the express words of the international agreement, whether as an express term or as a term implied for reasons including necessity‘, and not as requiring an express statement that immunity had been waived. 

While Articles 53-55 of the ICSID Convention did not expressly use the terms ‘waive’ or ‘waiver’, the High Court held that it was unmistakeable that the ICSID Convention contained a waiver of immunity with respect to enforcement of the award for the purposes of s 10(2) of the FSI Act.

Recognition, enforcement and execution

Sometimes the terms ‘recognition’, ‘enforcement’ and ‘execution’ are used loosely and with overlapping meaning.  However, in the text of the ICSID Convention, each of those terms is taken to have a particular meaning – that is:

• the obligation in the ICSID Convention that a State ‘recognise’ an award is an ‘obligation to recognise the award “as binding”‘;
• the obligation in the ICSID Convention that a State ‘enforce’ an award is a requirement that the State enforce pecuniary obligations imposed by an award (such as an award that monies are paid by one party to another) within its territories ‘as if [the award] were a final judgment of a court in that State‘.  Importantly, this obligation to enforce is expressed in a manner such that it stops short of any obligation to ensure execution of the award; and
• the ‘execution’ of an award is how a judgment enforcing an award is given effect.  The High Court held that by Article 55 of the ICSID Convention this is a matter to be determined solely under the domestic law of the relevant state where that execution may occur, by reference to the applicable domestic laws as to foreign state immunities.

Immunity from execution – balancing issues of state sovereignty and private international investment

The ICSID Convention is aimed at encouraging private international investment. 

In doing so, the ICSID Convention recognises that disputes may arise between contracting states and private investors (who are nationals of other contracting states).  The ICSID Convention seeks to establish a process, which either contracting states or private investors may trigger upon the occurrence of a dispute. 

However, the ICSID Convention does not ensure true and complete parity between contracting states and private investors.  Rather, while private investors can be compelled to comply with an award, a contracting state’s right of immunity in respect of execution is preserved.  

In most instances it might be ‘assumed that participating [states] would abide by the arbitral outcomes‘.  However, if this assumption does not hold true, then there is considerable uncertainty for private investors about compelling compliance with an award.