Australian High Court reinforces its pro-arbitration position in European dispute

In April 2023, the High Court of Australia (HCA) unanimously upheld the decision of the Australian Federal Court to enforce an arbitral award of €101 million in favour of Infrastructure Services Luxembourg S.à.r.l. (ISL) against the Kingdom of Spain (Spain).

This decision makes clear that:

• arbitral awards made against foreign states under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (ICSID Convention) may be recognised and enforced in Australia; as
• foreign state immunity (the principle whereby a foreign State is immune from the jurisdiction of the courts of Australia, except where an exception applies) may be waived by way of by implications inferred from the express words of a treaty in their context and in light of their purpose,

and cements Australia’s standing as a pro-arbitration jurisdiction.

Facts

The arbitration was commenced in accordance with the ICSID Convention by ISL in respect of its investment in solar projects, made in reliance on assistance from Spain by way of an energy subsidy program – which was later rolled-back by the Spanish government. It was alleged by ISL in the arbitration that the removal of the subsidy program following their own sizeable investment commitment was in breach of their Energy Charter Treaty obligations. €101mil was eventually awarded in favour of ISL.    

ISL originally commenced proceedings in the Federal Court of Australia seeking to enforce that award (with interest) under s 35(4) of the International Arbitration Act 1974, which permits the Federal Court to enforce an arbitral award as if the award were a judgment or order of that court.

Stewart J of the Federal Court, the Full Court of the Federal Court (when the decision was subsequently appealed) and the HCA (on further appeal) all considered whether:

1. Spain's agreement to the articles of the ICSID Convention concerning recognition and enforcement of arbitral awards (arts 53-55) (the Articles) involved any waiver of foreign State immunity from the jurisdiction of the courts of Australia; and, if so, whether:
2. Spain's amenability to jurisdiction is limited to "bare recognition" of the award, or to "recognition", "enforcement" and/or “execution” of the award.

In this context:

• “recognition” of an award refers to an obligation to recognise that award as binding;
• “enforcement” of an award is limited to to the monetary obligations imposed by the award and does not go further than to oblige the relevant foreign state to enforce thoseobligations within its territories "as if [the award] were a final judgment of a court in that State; and
• “execution” of an award refers to the means by which a judgment enforcing an international arbitral award is given effect and commonly involves measures taken against the property of the judgment debtor by a law-enforcement official.

In first instance, Stewart J held that Spain's agreement to the Articles constituted a waiver of its immunity from recognition and enforcement, but not from execution of the award by the Court. His Honour made orders against Spain including an order that Spain "pay the applicants €101 [million]".

On appeal, the Full Court of the Federal Court of Australia held that immunity from “recognition” had been waived by Spain's entry into the ICSID Convention, although immunity from court processes of “execution”, and perhaps also from “enforcement”, had not. The Full Court concluded that the orders of Stewart J went too far by "requiring Spain to do something”. The Full Court made new orders including, an order recognising the award as binding on Spain, as well as that "judgment be entered" against Spain for €101 million, but providing that nothing in that order "shall be construed as derogating from the effect of any law relating to immunity of [Spain] from execution”.

In the HCA:

• Spain submitted that foreign state immunity continued to apply as their being a party to the ICSID Convention was not sufficient as its wording was not explicit enough to amount to an express waiver thereof. The HCA stated that:
  • there was no basis to interpret the Foreign States Immunities Act 1985 (Cth) in a novel way, so as to exclude the possibility of a waiver of immunity being evidenced by implications inferred from the express words of a treaty in their context and in light of their purpose; and
  • a high level of clarity and necessity are required before inferring that a foreign State has waived its immunity in a treaty because it is so unusual, and the consequence is so significant;
• it was unanimously held that the orders made by the Full Court should:
  • properly be characterised as orders for recognition and enforcement; and
  • not be disturbed.

Implications

This decision by the HCA upholds Australia’s status as a pro-arbitration jurisdiction as  judgment in favour of Spain might have called into question the enforceability in Australia of many decisions made under the ICSID.

As a result, other companies with successful arbitral awards against foreign states with assets in the Australian jurisdiction may perceive Australia as a favourable jurisdiction for any enforcement action in respect of such awards.

With thanks to Ben Holmes for his contribution to this article.