Solar, Spain and a strange situation

One of the stranger – yet, at the same time, most important – Australian international law disputes of recent times found its way into the High Court last week, as the latest round in the ongoing dispute between Spain and Infrastructure Services Luxembourg (ISL) reached a hearing in Canberra.

ISL was an investor in a solar energy project in Spain. It was encouraged to establish that investment by generous government subsidies that were later withdrawn, and it commenced an arbitration in the International Centre for Settlement of Investment Disputes (ICSID) alleging a contravention by Spain of the Energy Charter Treaty. An ICSID tribunal awarded ISL (and related entities) 101 million Euros in damages. ISL then commenced proceedings for the recognition of that award in Australia. Why Australia was chosen isn’t clear, but recognition of ICSID awards may be sought in the courts of any country that has joined the ICSID convention. Initially, the orders sought by ISL would have required a payment by Spain, but by the time the case reached the Full Court of the Federal Court, the only issue was whether the award should be recognised by the Australian courts.

One potential obstacle to recognition of the award was Australia’s Foreign States Immunities Act 1985. Section 9 of the Foreign States Immunity Act sets out the general principle that “Except as provided by or under this Act, a foreign State is immune from the jurisdiction of the courts of Australia in a proceeding”, and Spain sought to rely on that section. ISL, however, pointed out that section 10 of the Act provided that a foreign State was not immune in a proceeding in which it had submitted to jurisdiction, or if it had waived its immunity. ISL argued that, by signing the ICSID treaty and submitting to the jurisdiction of ICSID, Spain had waived its immunity.

The Full Court focussed its attention upon Article 54 of the ICSID Convention, which requires that each contracting state recognize an award issued by an ICSID tribunal as binding. This, it concluded, meant that a contracting state “with a federal constitution may enforce such an award through its federal courts” as if it “were a final judgment” of that court. The Full Court, in other words, treated “recognition” of the award as something different to enforcement – a step in which a party is required to comply with the award, usually by making a payment.

The Full Court concluded that Article 54 of the ICSID Convention was an agreement by Spain that awards against it could be recognised, so that ISL’s award could be recognised by the Federal Court. It also held, however, that enforcement was something conceptually separate, so that its decision had no impact on the question of whether Spain was immune from the eventual enforcement of the award in Australia.

Spain appealed to the High Court, where last week it argued, in essence, that it was entirely immune from suits in Australia. Spain argued, first, that the concepts of recognition and enforcement are so closely intertwined that the Full Court was in error in holding that they were distinct; and that Article 54 of the ICSID Convention does not constitute a waiver because the use of the word “recognise” refers to something other than a court proceeding for recognition.

The outcome of the appeal will be both interesting and important to international arbitration lawyers: it will be a rare opportunity to see how the High Court views complex questions of international law and investment treaty arbitration, and especially the notion of sovereign immunity. But the case is also strange because what the decision won’t do is change very much between the parties. Even if ISL wins, it doesn’t appear to be very much closer to obtaining enforcement of its award, because the question of enforcement is not in issue. It will be left with an award recognised in Australia, which is of no practical use unless ISL takes some further step to enforce it. If Spain wins, it will close off the prospect of enforcement proceedings in Australia, but it’s far from clear that Spain has any assets in Australia against which the award might be enforced. Some newspaper reports have suggested that Spain has gold bullion “squirreled away” in Australia, but if that was ever so, then Spain has had plenty of time to move the assets elsewhere. No doubt there is a sophisticated strategic purpose behind all this, but it’s difficult not to see this case as a lengthy and expensive exercise that isn’t likely to do very much to resolve the real issues between the parties.