Kingdom of Spain

Several years ago, a Luxembourg company named Infrastructure Services Luxembourg (“ISL”) commenced an arbitration against the Kingdom of Spain under the Energy Charter Treaty. The arbitration was heard by a tribunal in the International Centre for the Settlement of Investment Disputes (“ICSID”), a body established under the ICSID Convention, to which Spain and Australia are parties. The ICSID tribunal awarded €101 million to ISL and, for reasons no one unconnected with ISL entirely grasps, it sought to enforce that award in Australia. Last Wednesday, the High Court delivered judgment in the latest (but perhaps not the last) round of this long-running dispute. That decision is important because it addresses significant questions on the interaction between investor-State disputes and sovereign immunity. But it also left some rather significant issues unresolved.

Generally speaking, foreign states are immune from the jurisdiction of the Australian courts unless they have consented to the jurisdiction or otherwise waived their immunity. The issue at the core of the Australian cases has been whether, by becoming a signatory to the ICSID Convention (which contemplates the recognition, enforcement and execution of ICSID awards), Spain had waived its sovereign immunity from the recognition, enforcement and execution of the award in Australia.

The primary judge in the Federal Court (Stewart J) held that Spain had waived its immunity from recognition and enforcement, but not from execution, of the award by the Court, and made orders against Spain including an order that Spain "pay the applicants €101 [million]". On appeal, the Full Court of the Federal Court (Allsop CJ, Perram and Moshinsky JJ) held that immunity from a proceeding for 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 the primary judge went too far by "requiring Spain to do something" and 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".

The High Court concluded that, given that Spain was the subject of a binding ICSID arbitral award, the effect of Spain's agreement to the ICSID Convention amounted to a waiver of foreign State immunity from the jurisdiction of the courts of Australia to recognise and enforce, but not to execute, the award. It held that the orders made by each of the primary judge and the Full Court were properly characterised as orders for recognition and enforcement. And it upheld the orders made by the Full Court.

In reaching its decision, the High Court examined the meaning of the terms “recognition”, “enforcement” and “execution” as they appear in the ICSID Convention. “Recognition”, the Court held, is no more than the determination by a court that an international arbitration award is entitled to be treated as binding. Because “enforcement” and “execution” are used as separate terms in the ICSID Convention, the High Court concluded that it was rational to infer that they had distinct meanings. It accepted that “enforcement” means the process taken by a court by which the international award is given the same status as a judgment of that court, while “execution” refers to the steps taken to give effect to that award or judgment (such as a seizure of property).

Article 54 of the ICSID Convention provides that “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 effect of that article, the High Court held, is that Spain had waived its immunity from enforcement. But Article 55 states that “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.” Its accession to the ICSID Convention, therefore, did not mean that Spain had waived its immunity from execution.

The High Court’s decision is, with respect, a highly logical attempt to come to terms with the confusingly imprecise language of the ICSID Convention. But there is also an inescapable air of unreality to it. For one thing, the word “enforcement”, at least in this context, no longer appears to mean what it says. The dictionary definition of enforcement is “the act of compelling observance of, or compliance with, a law, rule or obligation.” But enforcement, in this context, falls some distance short of compelling compliance. And ISL is in the strange position where it can “enforce” its award in Australia, so long as it does not require Spain actually to pay it.

That, of course, is a problem partly of ISL’s own making. Because it has not invited the court, at any stage of these curious proceedings, to rule on whether Spain has waived its immunity from execution, that decidedly relevant question remains unanswered. Until, perhaps, another string of cases makes its way towards the High Court.