The Court of Appeal has provided clarity as to the approach in determining whether and when matters concerning state immunity impact on the registration of arbitral awards related to the International Centre for Settlement of Investment Disputes (“ICSID”). As Katherine Butler explains, these appeals arose out of the High Court deciding, in two unrelated cases, that state immunity under English law should not affect the registration of such awards, but for entirely different reasons.
Case Background
On 22 October 2024, the Court of Appeal handed down its judgment in the joined appeals of Infrastructure Services Luxembourg SARL and another v The Kingdom of Spain[1] and Border Timbers Limited and another v Republic of Zimbabwe.[2] Both cases concerned applications by the nation states to set aside registrations of arbitral awards pursuant to the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “Convention”). In each case, Spain and Zimbabwe respectively claimed that entering adverse ICSID awards against them in the High Court contravened their immunity, as protected by the State Immunity Act 1978 (the “SIA”).
Legal Background
The Convention provides for disputes in respect of investments between a contracting nation state and a national of another state, to be arbitrated. More specifically, Article 54(1) of the Convention states:
“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.”
The United Kingdom gave effect to the Convention’s provision through the Arbitration (International Investment Disputes) Act 1966 (the “1966 Act”). As a result, ICSID awards can be registered in the High Court and enforced in the UK in the same way as any other judgment of the national courts.
Separately, s.1(1) of the SIA states that “a State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions…”. Accordingly, unless one of the exceptions in the SIA expressly applies, another nation state cannot be governed by the courts of the UK.[3]
The exceptions that are relevant to these cases are contained at s.2 and s.9 of the SIA:
- Under s.2, a sovereign state can specifically submit to the jurisdiction of the UK courts and thereby waive its immunity; and
- 9(1) provides that “where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration”.
The High Court Decisions
In Infrastructure Services, Spain received an adverse award to pay compensation of €101 million following its removal of tariff advantages for solar energy providers in breach of its obligations of fair and equal treatment under the Energy Charter Treaty 1994 (the “ECT”). In Borders, Zimbabwe was ordered to reinstate expropriated properties to the claimants, as well as to pay US$30 million in general damages and US$1 million in moral damages. Both sets of claimants sought and were granted the registration of these awards as High Court judgments, pursuant to the 1966 Act. Spain and Zimbabwe have separately claimed immunity and have sought to have the registrations of these awards set aside.
Spain and Zimbabwe contended that registering the awards would bring each country within the “jurisdiction” of the UK courts and that this was prohibited.
In Infrastructure Services, at first instance, Fraser J (as he then was) held that Spain did not have sovereign immunity due to the s.2 exception under the SIA. In signing up to the Convention, Spain had, via Article 54, submitted to the UK courts’ jurisdiction. Further, s.26 of the ECT provided that disputes in respect of the charter, to which Spain is a signatory, would be dealt with via ICSID arbitration. This constituted Spain’s agreement to submit a dispute to arbitration and, therefore, the exception to immunity under s.9 of the SIA also applied. Fraser J was, however, clear that whether or not a valid arbitration agreement was in place would be a matter for the registering judge to determine on the facts.
The approach taken by Dias MJ in Borders was very different. In that case, the Judge determined that the question of state immunity did not arise because, in registering the ICSID award, the UK court was not taking any “substantive step” against Zimbabwe and, therefore, no adjudicative jurisdiction was asserted. Rather, the registration of the award was “an essentially ministerial act in compliance with the UK’s international obligations under the ICSID Convention”.[4] Accordingly, the registration of the award did not require jurisdiction to be exerted over Zimbabwe as it was simply a functionary outcome of the UK’s treaty obligations. Therefore, the question of immunity under the SIA did not arise.
The Appeals
The Court of Appeal, through the leading judgment of Lord Justice Phillips, dismissed the appeals in both cases.
Firstly, in respect of whether s.1(1) of the SIA was engaged, their Lordships roundly rejected Dias MJ’s finding that it was not. At paragraph 38 of the judgment, Phillips LJ set out the position succinctly:
“In my judgment there could not be a clearer case of the English court exercising its adjudicative jurisdiction over a foreign state than entering judgment against that state on the basis of a decision that the requirements of a United Kingdom statute had been met. It is undoubtedly an ‘act of sovereignty’ as that phrase was used by the Supreme Court in General Dynamics, and thereby (subject to the further arguments considered below) engages the general immunity afforded by section 1(1) of the SIA.”
Accordingly, both Spain and Zimbabwe, as a starting position, were entitled to state immunity. The follow-up question was necessarily whether any of the exceptions as set out in the SIA applied.
Phillips LJ then considered whether, by virtue of Article 54 of the Convention, contracting states had submitted to the jurisdiction of the UK courts for the purposes of the exception at s.2 of the SIA. His Lordship considered, in detail, decisions of the courts of other nation states, particularly that of the Australian High Court concerning the recognition of the same award between Spain and Infrastructure Services.[5] Noting the international component, uniformity of treatment across the relevant jurisdiction was considered beneficial, if at all possible.[6]
On a straightforward reading of Article 54, which requires the unqualified recognition and enforcement of ICSID award, this provision cannot have envisaged excluding enforcement against the contracting state. Circumstances where only the investor party could be subject to enforcement across different jurisdictions would be perverse. As a result of signing up to the Convention’s Article 54, contracting states had specifically submitted to the UK’s jurisdiction in respect of ICSID awards and had waived state immunity under s.2 of the SIA.
On the basis that the question of state immunity had been answered, it was not necessary for their Lordships to address whether the exception concerning arbitrations at s.9 was automatically engaged in cases concerning the recognition of ICSID awards. Noting this, Phillips LJ did offer some obiter comments:
“… it is difficult to interpret section 9 of the SIA other than as imposing a duty on the court to satisfy itself that the state in question has in fact agreed in writing to submit the dispute in question to arbitration. I do not see a legal basis, whether issue estoppel … or statutory interpretation … which would justify the court in abrogating that duty and considering itself bound by the determination of the ICSID tribunal as to its own jurisdiction in that regard.”
This reasoning mirrors that of Fraser J in Infrastructure Services where he explained that whether or not there is a valid arbitration agreement in place will turn on the specific facts of that case. Accordingly, there being an ICSID award to be recognised does not automatically mean that the exception at s.9 of the SIA has been satisfied.
Conclusion
Invoking state immunity in respect of ICSID awards would render the principals of the Convention and, more specifically, the mutual recognition of such awards across jurisdictions, entirely one sided. This was clearly not the intent. Through this decision, the Court of Appeal has made it clear that, while state immunity under the SIA is engaged, ICSID awards are excepted.
[1] [2023] EWHC 1226 (Comm)
[2] [2024] EWHC 58 (Comm)
[3] Benkharbouche v Embassy of the Republic of Sudan [2017] UKSC 62
[4] See paragraph 106(b) of the Borders judgment.
[5] Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2023] HCA 11 (High Court of Australia)
[6] Islam v Secretary of State for the Home Department [1999] 2 AC 629