English Commercial Court declines Spain’s attempt to resist enforcement of intra-EU ICSID award
The English Commercial Court has issued a ground-breaking judgment which sets out its position on the interpretation of the Achmea and Komstroy cases in the context of the enforcement of intra-EU investment awards in England.
In Infrastructure Services Luxembourg SARL & Anor v Kingdom of Spain,1 the Court rejected Spain’s attempts to resist the enforcement of an intra-EU ICSID Convention award2 issued in favour of investors incorporated in Luxembourg and the Netherlands. The judgment provides clarity on the English courts’ approach to the recognition of intra-EU ICSID awards in the UK, and offers insight into the approach of the English judiciary to the interpretation of treaty obligations under international law.
SUMMARY AND KEY TAKEAWAYS
The court dismissed Spain’s application to set aside an order for the registration of the award. Spain argued that (i) the arbitral tribunal lacked jurisdiction because the arbitration of intra-EU investment claims under the Energy Charter Treaty (ECT) is incompatible with EU law, (ii) Spain enjoyed state immunity, and (iii) registration should be refused for non-disclosure of material information in the without notice application.
The Court rejected Spain’s EU law arguments, finding that their effect - if accepted - would be that:
- the EU and CJEU would have “unilaterally changed – if not removed – all the existing treaty obligations of all of the Contracting Parties to the [pre-existing] ICSID Convention.”3 According to the court that “simply cannot be correct”;4 and
- the English High Court must give effect to EU law whilst finding invalid the express provisions of the ICSID Convention5 incorporated into ECT and implemented in UK domestic law. There is “every reason not to do so”.6
Instead, the Court was bound to apply the provisions of the ICSID Convention and its implementing legislation the UK - the Arbitration (International Investment Disputes) Act 1966 (1996 Act). The court found that the 1966 Act required it to register the award rendered following a valid ICSID arbitration process between the claimants and Spain concerning their dispute under the ECT.
Given the failure of Spain’s attempt to annul the award pursuant to the relevant provisions of the ICSID Convention, there were no grounds under the 1966 Act on which Spain was permitted to resist enforcement before the English court, unless its argument for immunity under the State Immunity Act 1978 (the SIA 1978) could be made out.
Spain’s attempts to resist enforcement on the basis that there was no written agreement to arbitrate and therefore no valid award therefore failed.
Spain was also unable to rely on sovereign immunity as a defence since the agreement to arbitrate in the ICSID Convention and the ECT constituted a submission by Spain to the English court’s jurisdiction by prior agreement (section 2(2) SIA 1978), and the proceedings relate to arbitration for the purposes of the exception to immunity under section 9(1) SIA 1978.
Finally, the court rejected Spain’s argument that the claimants’ alleged material non-disclosures in the without notice application to register the award justified the setting aside of the order for registration.
In its detailed judgment, the court provided clarity on the approach English courts will take when asked to enforce intra-EU ICSID awards against EU Member States. Indeed, the judge clarified that he had specifically chosen to include his analysis of the UK enforcement regime for ICSID awards under the 1966 Act to address Spain’s multiple arguments opposing enforcement. However, the judge stressed that this should not be taken as encouragement that lengthy arguments to resist enforcement of an ICSID award under the 1966 Act will be appropriate. Parties to future applications of this kind should instead expect short judgments, particularly where attempts to annul the award under the ICSID Convention have failed and the award is valid and authentic.7
WHAT HAPPENED IN THE ARBITRATION?
Spain’s application concerned an arbitral award issued in investment arbitration proceedings commenced by entities incorporated in Luxembourg and the Netherlands. The claims were brought against Spain under the ECT,8 and concerned investments made in solar power installation projects in Spain. The claimants alleged that Spain’s removal of certain tariff advantages for renewable power sources from which they had previously benefitted amounted to a breach of its obligations to provide fair and equitable treatment under the ECT. Spain has been respondent in over 50 similar cases.
The claimants commenced arbitration pursuant to the dispute resolution provisions in Article 26 of the ECT, which expressly incorporates the ICSID Convention. The Convention provides a mechanism by which a national of one Contracting State may bring arbitration proceedings directly against another Contracting State pursuant to certain conditions. The Contracting States (which include Spain and the UK) each agreed that an award issued in such an arbitration would be recognised as binding and enforceable as though such an award were a judgment of a competent court of that State. In the UK, the 1966 Act implements the UK’s obligations under the ICSID Convention.
In the arbitration proceedings, Spain contested the tribunal’s jurisdiction, alleging that, as a matter of EU law following the Achmea decision, Spain’s offer to arbitrate set out in the ECT does not extend to investors from another EU Member State. That argument was rejected by the tribunal, which accepted jurisdiction and went on to determine the substantive dispute in favour of the claimants. In its final award (as rectified), the tribunal ordered Spain to pay the claimants approximately EUR120 million.
Spain applied to annul the award pursuant to the annulment procedure in the ICSID Convention. Again, Spain argued that intra-EU arbitrations under the ECT are precluded by EU law. Again, Spain was unsuccessful.
Thereafter, Spain has resisted the claimants’ attempts to enforce the award on similar jurisdictional grounds in Australia, the USA and in the UK in the present case. Such attempts have so far failed.9 In England, the High Court issued an order registering the ICSID award pursuant to the 1996 Act (the Order). It is that Order which Spain applied to set aside.
WHAT WERE SPAIN’S ARGUMENTS AGAINST ENFORCEMENT?
Spain’s arguments can be divided into three broad categories:
- Sovereign immunity: Spain was entitled to sovereign immunity under the SIA 1978 because none of the exceptions to immunity applied. Specifically, the provisions of the ICSID Convention did not constitute a prior written agreement amounting to a waiver of Spain’s immunities for the purposes of section 2(2), and the application of EU law referenced above meant there was no offer of arbitration in the ECT and accordingly the Order and set aside application did not “relate to arbitration” as required by section 9(1).
- Lack of a written agreement to arbitrate and invalidity of the award: there was no agreement to arbitrate because, under EU law, Spain’s offer to arbitrate as set out in Article 26 of the ECT does not extend to claims brought against it by nationals of other EU Member States. Accordingly, the award was invalid.
- Non-disclosure: the claimants failed to disclose material information when making the without notice application for the Order.
THE “EU LAW QUESTION”
Spain’s arguments A. and B. were premised on what the court described as “the EU law question”: “essentially the argument is that any intra-EU arbitration under the ECT is precluded by EU law (as would be any international arbitration to which a Member State is a party).”10
Spain argued that the arbitration clause in the ECT took disputes outside the jurisdiction of the Court of Justice of the European Union (CJEU), described by Spain as “the final arbiter of all questions relating to the interpretation and application of the EU legal order”. If an arbitral tribunal constituted to determine such a dispute is required to apply or interpret EU law, the fact that its conclusions will be “unreviewable” by the CJEU would undermine the autonomy of EU law.
However, as the court noted, removing the dispute from the jurisdiction of both domestic courts and that of the CJEU was “the whole point”.11 Indeed, it is the “main purpose” of the ICSID Convention, which is expressly incorporated into the ECT.12
Spain also argued that the claimants’ position would require treaty parties to terminate or withdraw from earlier treaties to “regain control”.13 According to the court, this was a misunderstanding of the effect of treaty obligations under international law. Once entered into, treaty obligations subsist for as long as that state is party to the treaty in question.14
Against that background, the court considered the EU law question in detail.
1) The decisions of the CJEU in Achmea15 and Komstroy16: the court reviewed these in some detail. They made it “crystal clear” that, as a matter of EU law, Article 26 of the ECT conflicts with EU Member States’ obligations under the EU treaties. According to the CJEU, Article 26 ECT cannot apply within the EU. However, in the court’s view, the CJEU’s position glosses over “the difficulties that such an interpretation would cause in terms of Member States’ existing international treaty obligations under both the ECT and ICSID Convention.”17
2) The relationship between the EU treaties, the ECT and the ICSID Convention: Spain’s arguments amounted to an attempt to elevate the status of the CJEU’s decisions in Achmea and Komstroy to decisions of an “over-arching international court that must bind all nations.”18 According to the court, this position (a) ignores other aspects of international law which require observance of existing express treaty obligations, and (b) ignores Spain’s treaty obligations in treaties existing prior to its entry into the EU treaties, such as the ICSID Convention and the ECT. The court found “the EU treaties do not trump these”.19
3) Recognition of an ICSID award in the UK: the court also held that EU treaties do not override UK domestic law on the recognition of ICSID awards.20 The Supreme Court decision in Micula & Ors v Romania21 is direct and binding authority on the operation of the ICSID Convention and the 1966 Act. In Micula the Supreme Court decided that:
- while English courts have the power to stay execution of ICSID awards in certain limited circumstances, the EU treaties did not displace the UK’s obligations under the ICSID Convention (pursuant to which the UK had a prior obligation to enforce the Award);
- a domestic court before which recognition and enforcement of an ICSID award is sought is restricted to ascertaining the award’s authenticity. Once the authenticity of an award is established, the domestic court may not (a) re-examine the ICSID tribunal’s jurisdiction, (b) re-examine the award on its merits, (c) examine the fairness and propriety of the proceedings before the ICISD tribunal, (d) refuse recognition or enforcement on grounds covered by the ICSID Convention itself (in its Articles 50-52), or (e) refuse recognition or enforcement on any general doctrine of public policy or ordre public;
- however, there is scope for additional defences against enforcement “in certain exceptional or extraordinary circumstances which are not defined”, provided national law recognises them in respect of final judgments of national courts and they do not directly overlap with the grounds of challenge reserved for ICSID Convention organs in its Articles 50-52 (Possible Defences).22
4) Analysis pursuant to the Vienna Convention: conventional analysis of conflicting treaty obligations requires consideration of the Vienna Convention of the Law of Treaties 1969 (the Vienna Convention). Specifically in this case, its Article 30(4) which applies to conflicts between treaties where the parties to the treaties in question are not the same. Pursuant to Article 30(4), for as long as Spain is a party to the ICSID Convention, that Convention should “govern the way in which valid ICSID awards against Spain are dealt with in other domestic courts”.23 A treaty cannot impact the obligations under an earlier treaty for states who are not a party to the later instrument. Spain’s attempts to argue that the conflict between the EU Treaties and the ECT and ICSID Convention should be resolved in favour of the former would require an interpretation of the latter which ignored their clear terms in respect of dispute resolution.24
5) The court's conclusion: The applicability of the CJEU’s ruling in Achmea to the ECT, while “probable”, is a purely EU law issue. The EU treaties do not have primacy over Article 26 of the ECT, as a matter of international law. Even if they did, “this would go to the jurisdiction of the ICSID arbitral tribunal, and the ICSID Convention makes clear that this is a matter that is reserved to, and can only be resolved by, the procedure set out in the convention, and not domestic law.”25
WHAT DID THE COURT DECIDE?
The court dismissed all of Spain’s arguments and upheld the Order for registration of the award.
A. Sovereign immunity
Following the court's conclusion on the EU law question, it turned to whether any of Spain's arguments fell within the category of Possible Defences. The court considered that only Spain’s argument that it was entitled to immunity under the SIA 1978 could constitute a Possible Defence.
- Section 2(2) SIA 1978 – prior written agreement: under this provision, a state loses its immunity if it has submitted to the jurisdiction of the English courts by prior agreement. Spain argued that Article 54 of the ICSID Convention26 did not constitute such an agreement since it does not amount to an express submission to jurisdiction or an express waiver of Spain’s immunity. The court disagreed, finding that the effect of Spain’s position would be that section 1(1) of the 1966 Act could only apply to awards in which the UK was a party, a result the court described as “absurd”.27
- Section 9(1) SIA 1978 – written agreement to arbitrate: Spain contended that its offer of arbitration in the ECT did not extend to the claimants, being entities incorporated in EU Member States.28 Accordingly, the tribunal had no jurisdiction over the dispute. Referring to its analysis of the EU law question, the court disagreed: “there is no justification for interpreting [the effect of Achmea and Komstroy as in some way, creating within the ECT itself, only a partial offer of arbitration to some investors, but not others, depending upon whether those investors were resident in Member States or elsewhere.”29 There is no wording in the ECT to support such an “extraordinary result”.30
Accordingly, the exceptions to immunity in both sections 2(2) and 9(1) SIA 1978 applied, and Spain was not entitled to rely on immunity under that Act.
B. Lack of a written agreement to arbitrate and invalidity of the award
According to Spain, the ICSID award was rendered pursuant to an offer by Spain to arbitrate under Article 26 ECT, but which did not extend to claims by nationals of other EU Member States.
Given its decision on the EU law question, the court dismissed Spain’s argument. Applying Micula, there were no Possible Defences available.
Although they were neither determinative nor binding on it,31 the court considered decisions issued elsewhere in the world concerning the enforcement of intra-EU ICSID awards, including certain of the claimants’ attempts to enforce the same award.
- Australia: the High Court of Australia dismissed Spain’s appeal against enforcement of the same award, finding that Spain was the subject of a binding ICSID arbitral award and that the effect of Spain’s agreement to Articles 53 to 55 of the ICSID Convention amounted to a waiver of foreign state immunity from the jurisdiction of the courts of Australia to recognise and enforce the award. The court characterised this decision as “separate free-standing support” of its own analysis.32
- USA: a decision of a US court in which enforcement against Spain was refused could not assist Spain, since (a) it related to an UNCITRAL arbitration and (b) the US court had acknowledged that a clear delegation of authority for the resolution of challenges to the existence of the arbitration agreement to the arbitrator(s) would likely lead to a different conclusion. That is clearly what the ICSID Convention does.
- British Virgin Islands (BVI): the Court disagreed with a decision of the Commercial Court of the BVI which had determined that the ICSID Convention had no impact on state immunity under the SIA. The Court found that the BVI court’s decision was secondary to its ratio on other issues, and that the point in question had not been argued fully.
The court dismissed Spain’s challenge for non-disclosure, finding that none of the alleged non-disclosures relied on by Spain were material in the context of the claimants’ without notice application for registration of the award.
Spain also argued that, where it appears likely that a state will rely on its immunity, the court should not issue an order without holding an inter partes hearing to consider the question of state immunity. According to the court, this is “a matter of procedure”.33 Listing Spain’s application for what would ultimately have been a four day hearing before issuing the Order would have been contrary to the overriding objective, which requires the court to consider matters such as costs, proportionality and the expeditious and fair administration of court business.34 Further, if a hearing were to be required as a matter of routine where a state makes such an application concerning an ICSID award, “the utility of having an arbitral award recognised by the courts will be undermined, and the efficient dispatch of court business would be damaged”.35
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1(2023) EWHC 1226 (Comm)
2References to “ICSID awards” or “ICSID arbitrations” are to such awards or arbitrations conducted under the ICSID Convention, rather than awards or arbitrations under the ICSID Additional Facility Rules .
3Para 123 of the judgment
4Para 123 of the judgment
5International Convention on the Settlement of Investment Disputes between States and nationals of other States.
6Para 125 of the judgment
7Paras 162 and 163 of the judgment
8The ECT is a multi-lateral treaty between over 50 states which sets out a legal framework for the promotion of long-term cooperation in the energy sector.
9See an update prepared by DLA Piper Australia in respect of the Australian proceedings: High Court of Australia rejects Spain’s sovereign immunity claim and clarifies two-step process for arbitral awards under the ICSID Convention.
10Para 36 of the judgment
11Para 49 of the judgment
12Para 49 of the judgment
13Para 160 of the judgment
14Para 160 of the judgment
15Slovak Republic v Achmea BV Case C-284/16
16Republic of Moldova v Komstroy LLC (successor in law to Energoalians) Case C-741/19
17Para 66 of the judgment
18Para 67 of the judgment
19Para 67 of the judgment
20Para 67 of the judgment
21Micula v Romania (European Commission intervening) (2020) UKSC 5
22Paras 79, 88 and 89 of the judgment. See also Micula, paras 68, 69 and 78
23Para 86 of the judgment
24Para 87 of the judgment
25Para 88 of the judgment
26Which sets out Contracting States’ obligations to recognise and enforce ICSID awards.
27Para 95 of the judgment
28Spain also submitted but ultimately withdrew an argument that section 9(1) did not encompass arbitrations involving “sovereign acts”. The court confirmed that this argument was flawed, because section 9(1) does not restrict itself to commercial arbitration, and the argument itself invites consideration of the substantive dispute, which the court is not permitted to do. See paras 96 – 99 of the judgment.
29Para 101 of the judgment
30Para 101 of the judgment
31Para 38 of the judgment
32Para 116 of the judgment
33Para 157 of the judgment
34Para 158 of the judgment
35Para 158 of the judgmen