A moment of clarity? State immunity and the enforcement of ICSID Convention awards in England and Wales
In a recent judgment providing much-needed clarity for both sovereign states and investors, the English Court of Appeal held that by Article 54 of the ICSID Convention, Contracting Parties to the ICSID Convention have submitted to the enforcement jurisdiction of all Contracting Parties and cannot oppose the registration of ICSID Convention awards on grounds of state immunity (Infrastructure Services Luxembourg SARL & Anor v The Kingdom of Spain [2024] EWCA Civ 1257 (Infrastructure Services (CA)). However, despite the Court of Appeal's resolution of this issue, its decision leaves certain issues undecided.
Key takeaways
The judgment in Infrastructure Services (CA) determined that states are unable rely on state immunity to object to registration orders made by the English courts in respect of adverse ICSID Convention awards.
In tackling this issue, the Court of Appeal decided:
- State immunity: in principle, s.1(1) of the State Immunity Act 1978 (SIA) does apply to the registration of ICSID Convention awards.
- Submission to the jurisdiction of the courts of the UK: the exception to state immunity under s.2 of the SIA applies to ICSID Convention awards, meaning that Contracting States may not oppose the registration of ICSID Convention awards on the grounds of sovereign immunity.
- Agreement in writing: the ICSID Convention does not constitute an “agreement in writing” for the purpose of the arbitration exception to sovereign immunity under s.9 of the SIA.
Investors and ICSID Contracting States are now armed with greater certainty about their rights and remedies before the English courts.
Introduction
The Court of Appeal was primarily concerned in Infrastructure Services (CA) with the relevance of sovereign immunity, as enshrined in s.1(1) of the SIA, to applications for an order for the registration of ICSID Convention awards (Registration Applications).
In this regard:
- The ICSID Convention created a resolution mechanism by which foreign investors domiciled in a Contracting State can bring arbitral proceedings directly against another Contracting State.
- Article 54 of the ICSID Convention provides that, where a Contracting State fails to comply with an ICSID Convention award, the investor may seek to have the pecuniary obligations imposed by the ICSID Convention award recognised and enforced in another Contracting State as if the ICSID Convention award were the final judgment of a court in the Contracting State’s courts.
- In England, Registration Applications are made before the Commercial Court under a bespoke procedure contained in CPR 62.21 and pursuant to the Arbitration (International Investment Disputes) Act 1966 (the 1966 Act). The 1966 Act implemented the UK’s obligations under the ICSID Convention into English law.
What issues were before the Court of Appeal?
The Court of Appeal heard two appeals – separately brought by Spain and Zimbabwe – against decisions by the English Commercial Court in Infrastructure Services Luxembourg S.À.R.L. and another v The Kingdom of Spain [2023] EWHC 1226 (Comm) (Infrastructure Services (HC)) and Border Timbers Limited and another v Republic of Zimbabwe [2024] EWHC 58 (Comm) (Border Timbers).
In both cases, the English Commercial Court made Registration Orders in respect of ICSID awards adverse to Spain and Zimbabwe, respectively. A summary of the background and our analysis of these cases can be found in DLA Piper articles from June 2024 and July 2023.
On appeal, Spain and Zimbabwe submitted that states continued to enjoy immunity under the SIA notwithstanding the ICSID Convention or the 1966 Act. However, the grounds of their appeals differed:
- Spain argued that Article 26 of the Energy Charter Treaty (ECT), which provided that disputes arising out of the ECT were to be determined by ICSID arbitration, had been disapplied by reason of recent decisions of the Court of Justice of the European Union.1
- Zimbabwe, on the other hand, argued that the dispute giving rise to the relevant ICSID arbitration (and subsequent award) fell outside the scope of the ICSID arbitration provisions contained within the Switzerland-Zimbabwe bilateral investment treaty.2
In rejecting both arguments, the Court of Appeal focused on three issues discussed below.
1. In principle, does s.1(1) of the SIA apply to the registration of ICSID Convention awards?
In Infrastructure Services (HC), Fraser J held that recognition of an ICSID Convention award “requires the court to have adjudicative jurisdiction.3 However, in Border Timbers, Dias J had held that because the procedure for registering ICSID Convention awards under CPR 62.21 didn’t require applicants to serve the state with any originating process (eg an application or claim form), in granting a Registration Order the Commercial Court was not exercising its adjudicative jurisdiction but merely recognising the applicant’s entitlement under s.1(2) of the 1966 Act to have an ICSID Convention award registered.4 Dias J characterised this non-adjudicative function as “an essentially ministerial act in compliance with the UK’s international obligations under the ICSID Convention.”5 Only once the resulting Registration Order was served on the state do they formally become impleaded (and only at that stage does the issue of sovereign immunity arise). Accordingly, the issue of sovereign immunity didn’t arise in relation to the registration of an ICSID Convention award – only to its execution.6
Disagreeing with Dias J's view, the Court of Appeal held that registration of an award was adjudicative in nature because (amongst other factors) it required a judge to assess evidence (such as proof of authenticity) and enter judgment against a foreign state.7 Accordingly, the issue of sovereign immunity did arise at the registration stage and, therefore, s.1(1) of the SIA did apply in principle.8
2. If s.1(1) of the SIA applies to the registration of ICSID Convention awards, does Article 54 of the ICSID Convention entail that the exception under s.2 of the SIA necessarily applies?
Under s.2 of the SIA, a state is not immune to adjudicative proceedings if it has submitted to the English courts’ jurisdiction.
In Border Timbers, the claimants argued that, by reason of Article 54 of the ICSID Convention, Zimbabwe agreed to have the pecuniary obligations imposed by the ICSID Convention award recognised and enforced in the English courts. Rejecting the claimants' argument, Dias J held that the language of Article 54 of the ICSID Convention was “not a sufficiently clear and unequivocal submission to the jurisdiction of the English courts” for the purposes of s.2 of the SIA because s.2 had been drafted with reference to specific proceedings before a specific court, whereas Article 54 represented a general waiver of immunity unrelated to any identifiable proceedings.9 Even if Article 54, properly construed, contained an implicit submission to the English courts’ jurisdiction, it is a clear requirement of English law that any waiver of sovereign immunity in a treaty provision be stated expressly.10
By contrast, in Infrastructure Services (HC), Fraser J had held that Article 54 of the ICSID Convention constituted a prior written agreement by which Contracting States had submitted to the jurisdiction of the English courts – meaning that the s.2 exception applied.11
On appeal, both Spain and Zimbabwe argued that Article 54 did not constitute a submission to the English courts’ jurisdiction because:
- Contracting States did not intend to waive state immunity by reason of Article 54;
- Agreement to submit to the jurisdiction must be express, whereas Article 54 would constitute an implicit agreement (if at all); and
- Interpreting Article 54 as a submission to jurisdiction would be contrary to the widely accepted interpretation of a similarly drafted article of the New York Convention – with “unfortunate consequences”.12
The Court of Appeal rejected these arguments: the ordinary meaning of the words used in the ICSID Convention was that ICSID Convention awards were to be treated in each Contracting State as final judgments and enforced as such.13 Accordingly, Contracting States had submitted to the jurisdiction of the English courts and the exception under s.2 of the SIA applied. In other words, foreign states may not oppose the registration of ICSID Convention awards on the grounds of state immunity.
In so holding, the Court of Appeal followed the interpretation of the ICSID Convention adopted by the High Court of Australia (HCA) in proceedings brought by Infrastructure Services to enforce the ICSID Convention award against Spain in Australia.14 In those proceedings, the HCA held (inter alia) that it would distort the terms of Article 54 to require separate conduct from a foreign state amounting to a waiver of immunity before the ICSID Convention award could be recognised and enforced. This was because (among other factors), Article 53 of the ICSID Convention provided that ICSID Convention awards are “binding” on Contracting States and Article 55 preserved immunity from execution only.
As to the argument, advanced by Spain and Zimbabwe, that Article 54 of the ICSID Convention was insufficiently precise to satisfy the requirements of “a prior written agreement” for the exception under s.2 of the SIA to apply, the Court of Appeal remarked that Article 54 was a sufficiently express waiver of immunity and submission to the English court's jurisdiction.15
Finally, with respect to the third argument – namely, that a similarly drafted article of the New York Convention (Article III) was widely interpreted as not constituting a waiver of adjudicative state immunity – the Court of Appeal was unconvinced. One reason was that there was no requirement that the interpretation of one treaty necessitated a consideration of the effect on a second treaty dealing with different subject-matter.16 Furthermore, the wording adopted in Article 54 of the ICSID Convention and the New York Convention were not identical, so the Court of Appeal's interpretation of Article 54 did not have inevitable consequences for the interpretation of the New York Convention.17
3. Are foreign states otherwise prevented from asserting that ICSID Convention awards are invalid, such that the exception under s.9 of the SIA is necessarily satisfied?
Pursuant to s.9 of the SIA, a state cannot rely on sovereign immunity with respect to UK court proceedings related to arbitration if it has agreed in writing to submit a dispute to arbitration.
In Border Timbers, the claimants argued that Zimbabwe consented to ICSID Convention arbitration pursuant to (inter alia) Article 10 of the BIT and, therefore, Zimbabwe had agreed to submit its disputes with the claimants to arbitration. In her judgment, Dias J held that – having failed to satisfy the court that (inter alia) the parties’ ICSID arbitration fell within the scope of Article 10 of the BIT (ie the parties’ arbitration agreement) – the claimants had failed to establish that Zimbabwe had agreed in writing to submit its dispute with the claimants to arbitration and that s.9 of the SIA therefore applied.18
On the other hand, in Infrastructure Services (HC), Fraser J had held that the ICSID Convention satisfied the requirements of s.9 of the SIA because it is “an agreement in writing by all the contracting states to submit disputes with investors from other states to international arbitration.”19
In Infrastructure Services (CA), the Court of Appeal's obiter view was that s.9 of the SIA could not easily be interpreted otherwise than as imposing a duty on the English courts to satisfy themselves that a foreign state had – in fact – agreed in writing to submit the dispute to arbitration.20 This was not an issue that could be abrogated to the ICSID tribunal. So, while the necessary prior written agreement to submit to the jurisdiction of the English courts for the purpose of the exception under s.2 of the SIA is present in Article 54, the ICSID Convention does not contain the relevant arbitration agreement for the purpose of the exception under s.9 of the SIA.21 Nevertheless, the Court of Appeal declined to decide the point finally given it was unnecessary to do so given its other conclusions.
Summary
In our article from June this year, we provided a summary of the contradictory positions taken by the High Court in Border Timbers and Infrastructure Services. Below, we set out a revised table showing the extent to which the Court of Appeal has clarified these issues.
| Issue | Border Timbers | Infrastructure Services (HC) | Infrastructure Services (CA) |
|---|---|---|---|
| Does Article 54 of the ICSID Convention constitute a submission by contracting states to the jurisdiction of the English courts, for the purposes of s.2 of the SIA? | No | Yes | Yes |
| Does the ICSID Convention constitute a written agreement to arbitrate, for the purposes of s.9 of the SIA? | No | Yes | No, but not finally decided (obiter) |
| Does the recognition of an ICSID Convention award involve the Commercial Court’s adjudicative jurisdiction? | No | Yes | Yes |
| Does the scope of an applicant’s duty of full and frank disclosure include drawing the High Court's attention to possible sovereign immunity defences that a state my raise? | Yes | No | Not applicable22 |
Conclusion
As discussed in DLA Piper's earlier article on this topic, the prevailing confusion as regards the English courts’ approach to important jurisdictional and procedural issues arising in the context of the recognition and enforcement of ICSID Convention awards in England and Wales prior to the Court of Appeal's decision represented a most unhappy state of affairs.
Fortunately, with the Court of Appeal's decision in Infrastructure Services (CA), much of the prevailing confusion appears to have been resolved. However, there do remain certain unresolved issues that potentially impact present and future recognition and enforcement applications, including Spain's argument on the validity of Article 26 of the ECT (ie the ICSID arbitration provision) and Zimbabwe's alternative defences to registration on non-immunity grounds.
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