Enforcement of ICSID Convention awards in England and Wales: current trends

Two recent judgments of the High Court of England and Wales have taken conflicting approaches to important jurisdictional and procedural issues arising in the context of the recognition and enforcement of ICSID Convention awards in England and Wales. As a result, the rights and remedies available to investors and contracting states before the English courts are – at present – in an unsatisfactory state of flux.

 

Key takeaways

Border Timbers Limited & Hangani Development Co. (Private) Limited v Republic of Zimbabwe [2024] EWHC 58 (Comm) and Operafund Eco-Invest SICAV Plc & Schwab Holding AG v Kingdom of Spain [2024] EWHC 82 (Comm) addressed issues fundamental to the recognition and enforceability of ICSID Convention awards in England and Wales. The issues included whether:

• the ICSID Convention constitutes a submission by contracting states to the jurisdiction of the English courts, for the purposes of s.2 of the SIA;
• the ICSID Convention constitutes a written agreement to arbitrate, for the purposes of s.9 of the SIA;
• the recognition of an ICSID Convention award involves the Commercial Court’s adjudicative jurisdiction; or
• the scope of an applicant’s duty of full and frank disclosure includes drawing the English High Court’s attention to possible sovereign immunity defences that a state my raise.

The judges presiding over the two cases came to opposing conclusions. This has left investors and contracting states with considerable uncertainty about their rights and remedies before the English courts. Fortunately, the Court of Appeal is due to hear the appeal of a third, related case, Infrastructure Services Luxembourg SARL & Energia Termosolar BV v Kingdom of Spain [2023] EWHC 1226 (Comm) in June 2024. So, it's hoped that the issues from Border Timbers and Operafund will soon be clarified.

 

Introduction

The jurisdictional issues primarily revolve around the applicability of the sovereign immunity defence, as enshrined by s.1(1) of the State Immunity Act 1978 (the SIA), to applications for an order for the registration of ICSID Convention awards (Registration Applications). The procedural issues relate to the scope of an applicant’s duties of full and frank disclosure in making a Registration Application.

Before turning to a discussion of these cases, it’s helpful to briefly set out the statutory and procedural framework that governs Registration Applications:

• 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.
• Registration Applications under CPR 62.21 are typically made without notice. Accordingly, an applicant wishing to register an ICSID Convention award in the UK is under a duty of full and frank disclosure.

With this framework in mind, let’s look at the cases in question.

 

Border Timbers Limited & Hangani Development Co. (Private) Limited v Republic of Zimbabwe [2024] EWHC 58 (Comm)

Border Timbers arose out of an ICSID Convention arbitration brought by Border Timbers and Hangani Development (the Claimants) against Zimbabwe under the Switzerland-Zimbabwe bilateral investment treaty (BIT). The Claimants obtained a USD125 million award.

The Claimants successfully made a (without notice) Registration Application resulting in an order of the English Commercial Court in its favour (a Registration Order). Zimbabwe subsequently applied to set aside the Registration Order. Zimbabwe claimed that s.1(1) of the SIA applied to Registration Applications in respect of ICSID Convention awards and that, accordingly, Zimbabwe benefited from sovereign immunity in respect of the Registration Order. Zimbabwe also argued that in making the Registration Application, the Claimants had breached their duty of full and frank disclosure.

Jurisdictional issues

The Claimants contended that Zimbabwe could not rely on sovereign immunity in the present circumstances as the exceptions provided under ss. 2 and 9 of the SIA applied:

• Section 2 (submission) exception: pursuant to s.2 of the SIA, a state can’t rely on sovereign immunity if it has submitted to the English courts’ jurisdiction and, because of Article 54 of the ICSID Convention (the effect of which is described above), Zimbabwe had agreed to have the pecuniary obligations imposed by the ICSID Convention award recognised and enforced in the English courts.
• Section 9 (arbitration) exception: pursuant to 9 of the SIA, a state can’t rely on sovereign immunity if it has agreed in writing to submit a dispute to arbitration and, because Zimbabwe consented to ICSID Convention arbitrations pursuant to (inter alia) Article 10 of the BIT, Zimbabwe had agreed to submit its disputes with the Claimants to arbitration.

Handing down her judgment on 19 January 2024, Dias J decided against the Claimants on both their objections:

• Section 2 (submission) exception: 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.¹ Even if Article 54, properly construed, contained an implicit submission to the English courts’ jurisdiction, it’s a clear requirement of English law that any waiver of sovereign immunity in a treaty provision be stated expressly.²
• Section 9 (arbitration) exception: 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 (i.e. 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.³

As Dias J noted in her judgment, her findings on both these jurisdictional issues were at odds with Fraser J’s earlier High Court decision in Infrastructure Services Luxembourg Sarl & Another v Kingdom of Spain. We  prepared detailed analysis of the Infrastructure Services case in this DLA Piper article from July 2023. But, in short, Fraser J had held that (1) 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 applies)⁴ and (2) the ICSID Convention satisfies 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.”⁵

Interestingly, despite rejecting the Claimants’ objections to Zimbabwe’s application, Dias J didn’t set aside the Registration Order. This was because Dias J held that the issue of sovereign immunity only arises once a state is “impleaded” (i.e. made the subject of legal proceedings against its will). In the context of the recognition and enforcement of ICSID Convention awards, this only occurs when the state is served with the resulting Registration Order.⁶ Justifying her finding, Dias J noted that 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). They (merely) had to serve the state with the resulting Registration Order. This implies that, 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.⁷ Dias J characterised this non-adjudicative function as “an essentially ministerial act in compliance with the UK’s international obligations under the ICSID Convention.”⁸ Only once the resulting Registration Order is 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.⁹

The distinction drawn by Dias J between the registration and execution is, as she recognised, a novel one. And it also contradicts Fraser J’s judgment in Infrastructure Services, where he had held that the recognition of an ICSID Convention award “requires the court to have adjudicative jurisdiction.”¹⁰ But the distinction is limited to ICSID Convention awards (because CPR 62.21 provides for a unique procedural framework). So it wouldn’t affect non-ICSID awards such as New York Convention awards that may require service of an originating process and expressly require the English courts to exercise its adjudicative jurisdiction to determine whether any of the defences to recognition and enforcement apply.¹¹

Recognising that her findings were in conflict with Infrastructure Services (which, as an English High Court judgment, was not a binding authority), Dias J granted the Claimants permission to appeal. On 5 October 2023, the Court of Appeal granted Spain permission to appeal Fraser J’s Infrastructure Services judgment. The hearing is currently listed for 18 June 2024. It’s unclear at this stage whether the two cases will be heard as a combined appeal.

Procedural issues

Finally (and relatedly), Dias J as addressed Zimbabwe’s allegation that the Claimants had breached their duty to provide full and frank disclosure at the without notice Registration Application. She agreed that the Claimants’ failure to draw the Commercial Court’s attention to the possible sovereign immunity defences that Zimbabwe might have raised constituted a breach of duty. This was because the SIA required the English courts to give effect to sovereign immunity. So it was “incumbent on anyone making an application which names a state as respondent to address the question in order to allow the court to satisfy itself that immunity is not engaged.”¹² But Dias J also held that, in the particular circumstances of the case, Zimbabwe had not suffered prejudice by reason of the Claimant’s breach because the Claimants were (as explained above) in any case entitled to register the ICSID Convention award.¹³

Dias J’s findings on the scope of the Claimants’ duty of full and frank disclosure is in notable tension with Fraser LJ’s decision in the second case under discussion in this article.

 

Operafund Eco-Invest SICAV Plc & Schwab Holding AG v Kingdom of Spain [2024] EWHC 82 (Comm)

On 25 January 2024, a mere six days after Border Timbers, Fraser LJ handed down his judgment in Operafund.

Operafund concerned the recognition and enforceability of a EUR33 million ICSID Convention award following an ICSID Convention arbitration claim that Operafund and Schwab (the Claimants) had brought against Spain under Article 26 of the Energy Charter Treaty (ECT). The award was made the subject of a Registration Order. Spain subsequently brought an application to set aside the Registration Order.

Spain’s application contained jurisdictional and procedural objections. As Fraser LJ noted in the introduction to his judgment, the jurisdictional elements of Spain’s application in Operafund shared “remarkable similarities” to the legal arguments Spain presented in the Infrastructure Services case.¹⁴ There are also remarkable similarities with the legal issues in Border Timbers. In brief, Spain’s objections in Infrastructure Services concerned:

• Sovereign Immunity: did 1(1) of the SIA apply to Registration Applications in respect of ICSID Convention awards?
• Submission to the Jurisdiction: did the ICSID Convention constitute a submission by Spain to the jurisdiction of the English courts under s.2 of the SIA?
• Intra-EU agreements: did recent decision from the CJEU disapplying arbitration agreements in the intra-EU context under investment and multilateral investment treaties mean that there was no valid arbitration agreement for the purposes of s.9 of the SIA?

Jurisdictional issues

As we’ve seen, the judgment in Infrastructure Services dismissed Spain’s objections. But recognising that judgment was currently under appeal, Fraser LJ ordered that the jurisdictional elements of Spain’s application in Operafund be adjourned pending the determination of the Infrastructure Services appeal (at which point the Court of Appeal’s position on the similar arguments in Operafund ought to be clear).¹⁵

An additional interesting feature of Operafund was that Schwab issued its own application in respect of the Registration Order. Schwab requested that – on the assumption that Spain’s jurisdictional objections succeed as against Operafund – the Registration Order be varied such that Schwab would be able to unilaterally enforce the ICSID Convention award against Spain before the determination of the Infrastructure Services appeal. The basis for Schwab’s variation application was that Spain’s third jurisdictional objection to the recognition and enforcement of the ICSID Convention award (ie objection C above) didn’t apply to Schwab (as it did to Operafund) because Schwab was Swiss domiciled and not, like Operafund, EU domiciled. Spain conceded Schwab’s argument. But it submitted that Schwab couldn’t unilaterally enforce the ICSID Convention award because the Commercial Court didn’t have the power to grant a single damages sum awarded in favour of Schwab only – to the exclusion of Operafund.

As with the jurisdictional basis of Spain’s application to set aside the ICSID Convention award, Fraser LJ adjourned the determination of Schwab’s application pending the outcome of the Infrastructure Services appeal.¹⁶ Both Schwab and Spain’s approach to Schwab’s application assumed that, if the Infrastructure Services appeal was determined in Spain’s favour, the respective positions of Operafund (being EU domiciled) and Schwab (being Swiss domiciled) would be different as regards Spain’s right to assert immunity in respect of the ICSID Convention award. But, as Fraser LJ observed, Spain was advancing other jurisdictional objections in the Infrastructure Services appeal that were advanced on different legal bases and that – if successful – would affect EU and non-EU domiciled parties equally.¹⁷ Accordingly, determining Schwab’s application in Operafund before the Infrastructure Services appeal had been determined would be premature in circumstances where it was unknown whether (and to what extent) that decision would affect the Claimants in Operafund differently.

Procedural issues

The procedural element of Spain’s application was also advanced on similar terms in Infrastructure Services, but wasn’t the subject of the current appeal. Spain argued that the Claimants had failed to convey to the Commercial Court a “significant amount of information” that was material to their Registration Application. And, subsequently, they “failed to update the court thereafter” – breaching their duties of full and frank disclosure.

Of particular interest was Spain’s argument (as “reproduced”¹⁸ by Fraser LJ) that – when making its application for the Registration Order on a without notice basis – the Claimants should have drawn the Commercial Court’s attention to the case of Gold Reserve Inc v Bolivarian Republic of Venezuela.¹⁹ Gold Reserve was (Spain submitted) authority for the proposition that – where it’s likely that a respondent state will claim sovereign immunity against the recognition and enforcement of an arbitral award – an inter partes hearing should invariably be held before granting permission to enforce the award. Rejecting Spain’s argument, Fraser LJ reiterated guidance first given in Infrastructure Services:  

“… the making of the [Registration] Order in the way adopted here [ie following a without notice Registration Application and without requiring an inter partes hearing] gives any respondent the chance to consider, take advice specific to this jurisdiction, and then reflect upon whether it will challenge the order, and if so, on what grounds. If inter partes hearings were to be required as a matter of routine… the utility of having an arbitral award recognised by the courts will be undermined, and the efficient dispatch of court business would be damaged.”²⁰

Accordingly, Fraser LJ held that the Claimants’ failure to draw the Court’s attention to Gold Reserve didn’t constitute a breach of their duties of full and frank disclosure. This is plainly in contradiction with Dias J’s finding in Border Timbers that the Claimants’ failure to draw the Commercial Court’s attention to the possible sovereign immunity defences that Zimbabwe might have raised constituted a breach of duty.

 

Summary

We set out below a useful summary of the contradictory positions taken by the High Court in Border Timbers and Infrastructure Services / Operafund.

 

Issue	Border Timbers	Infrastructure Services/ Operafund*
Does 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
Does the ICSID Convention constitute a written agreement to arbitrate, for the purposes of s.9 of the SIA?	No	Yes
Does the recognition of an ICSID Convention award involve the Commercial Court’s adjudicative jurisdiction?	No	Yes
Does the scope of an applicant’s duty of full and frank disclosure include drawing the High Court to possible sovereign immunity defences that a state my raise?	Yes	No

 

* Please note that the position in Operafund is reserved pending the Court of Appeal’s determination of the Infrastructure Services appeal.

 

Conclusion

As Fraser LJ reflected at the conclusion of his judgment, Operafund is in many respects “an unhappy case.” Indeed, the current confusion as regards the English courts’ approach to Registration Applications represents a most unhappy state of affairs. Whereas the ICSID Convention’s raison d’etre was to “avoid the risk of lengthy enforcement proceedings against states by parties that had succeeded in establishing awards in their favour,” the two cases we’ve discussed – Border Timbers and Operafund – are the latest in a line of long, drawn-out ICSID Convention award enforcement cases. We hope the Court of Appeal’s awaited decision in Infrastructure Services will bring some much-needed clarity to this important area of law and we’ll be providing an update in light of that judgment.

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