UK Court of Appeal rejects Spain and Zimbabwe’s appeals, upholds ICSID award enforcement despite State immunity claims
Executive summary: In two separate cases concerning the enforcement of ICSID arbitral awards, on 22 October 2024 the UK Court of Appeal unanimously dismissed the appeals of the Kingdom of Spain and Zimbabwe and upheld the decisions of the Commercial Court to recognise the awards. The Court ruled that although the State Immunity Act 1978 (SIA) generally grants foreign states immunity from the jurisdiction of the English courts, the exception provided for in section 2 of the SIA applied because, by virtue of their accession to the ICSID Convention, both Spain and Zimbabwe had given their written consent to the jurisdiction of the English courts to enforce ICSID awards. As a result, neither state could rely on state immunity to oppose registration of the awards under the Arbitration (International Investment Disputes) Act 1966. Furthermore, the Court declined to give an obiter opinion on Spain's "intra-EU objection" in relation to the Energy Charter Treaty. Although Spain remains free to appeal to the Supreme Court, Zimbabwe's application for annulment has been remitted to the Commercial Court for consideration of its non-immunity defence.
In a joint decision dated 22 October 2024, the UK Court of Appeal unanimously rejected the appeals lodged by the Kingdom of Spain and Zimbabwe respectively in the Infrastructure and Timber cases. The Court held that section 1(1) of the State Immunity Act 1978 (SIA) normally applies to the registration of ICSID awards against a foreign state under the Arbitration (International Investment Disputes) Act 1966. It concluded, however, that the objection to registration on the grounds of state immunity was precluded by the fact that, under Article 54 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), Contracting States, by signing the Convention, had given their written consent to jurisdiction for the enforcement of ICSID awards. Accordingly, since the exception to state immunity in Section 2 of the SIA was necessarily invoked, none of the Appellant States was entitled to oppose recognition on the basis of state immunity.
Therefore, the Court of Appeals upheld the decisions of the Commercial Court, which had ordered that the Awards be recognized.
In the case of the Republic of Spain, while the Court of Appeal’s decision upholds the recognition of the award ordered at first instance, the state can still appeal the decision to the Supreme Court.
In the case of Zimbabwe, the Court of Appeal referred Zimbabwe's set-aside application to the Commercial Court for directions in relation to its non-immunity exceptions.
The cases in question, Infrastructure Services Luxembourg S.À.R.L. Energia Termosolar B.V. v The Kingdom of Spain and Border Timbers Limited and Hangani Development Co. (Private) v Republic of Zimbabwe, concern the request for registration in England of two Awards rendered by two different ICSID Arbitral Tribunals.
The first one, rendered on June 15, 2018, in which the Kingdom of Spain was ordered to pay Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V. (formerly Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V.) the sum of EUR 112 Million for the breach of Article 10(1) of the Energy Charter Treaty (ECT).
In the other Award, rendered on 28 July 2015, Zimbabwe was ordered to pay Border Timbers Limited, Timber Products International (Private) Limited, and Hangani Development Co. (Private) Limited, owned by the von Pezold family, USD 124 million plus interest, together with a further USD 1 million in moral damages and costs, for the breach of the 1996 Switzerland - Zimbabwe BIT from the unlawfully expropriation of the Claimants’ investments and returns in its territory.
The applications for registration and entry of judgment on the awards in England pursuant to section 2 of the Arbitration Act 1966 were granted by Mrs Justice Cockerill on 29 June 2021 and 8 October 2021, respectively, who ordered that the awards be recognised and entered as judgments by the High Court in the same manner and with the same force and effect as if they were final judgments of that court.
Then, Spain and Zimbabwe applied to set it aside on the grounds that they were immune from the jurisdiction of the UK courts by virtue of section 1(1) of the SIA. In response, the Claimants argued that the Respondents fell within one or both of the exceptions to immunity set out in sections 2 and 9 of the SIA on the basis that they had submitted to the jurisdiction by virtue of its agreement to the ICSID Convention and/or had agreed to submit the underlying dispute to ICSID arbitration and so was not immune in respect of proceedings in the United Kingdom relating to that arbitration.
In other words, the question was whether foreign states, the subject of adverse arbitration awards rendered pursuant to the provisions of the ICSID Convention, can rely on state immunity to set aside the registration of those awards in the High Court under the Arbitration Act 1966, i.e, the legislation by which the United Kingdom give effect to its obligation to make the provisions of the Convention effective in its territories.
In both cases, the Commercial Court of the High Court of Justice of England and Wales had answered that question in the negative, although with different arguments.
In his judgment in Infrastructure Services Luxembourg SARL and another v The Kingdom of Spain dated 24 May 2023, Judge Fraser dismissed Spain’s application to set aside the order of the King’s Bench Division that had ordered the registration of the Award of the ICSID Tribunal, as if it had been a judgment of the High Court.
Based on his reading of the decision of the Supreme Court in Micula & Ors v Romania, the Court was of the view that the ICSID Convention precluded Spain raising any "defence" under the SIA to the recognition of an ICSID arbitration award. In the alternative, if the SIA was engaged, the Court found that Spain did not have immunity because (i) article 54 of the ICSID Convention constituted a submission to the jurisdiction for the purposes of the exception in section 2 of the SIA; and/or (ii) it was not open to Spain to dispute that it had agreed to arbitration within section 9 of the SIA.
Moreover, Judge Dias reached the same conclusion, but for entirely different reasons. In Border Timbers Limited and another v Republic of Zimbabwe, contrary to the submissions of both the Border claimants and Zimbabwe, she held that section 1(1) of the SIA had no application to the registration of an ICSID arbitration award because such registration was an essentially automatic ministerial act, not involving any adjudicative step on the part of the English courts in respect of which immunity could arise. She also held that state immunity is irrelevant to applications for registration, and questions of immunity would only arise if the judgment creditor sought to execute the registered award against the property of the state (section 13(2)(b) of the SIA).
These decisions were appealed by both Spain and Zimbabwe. In their appeals, they contend that neither the ICSID Convention nor the Arbitration Act 1966 deprives foreign states of their general immunity from the adjudicative jurisdiction of the courts of the United Kingdom conferred by section 1(1) of the SIA.
They also contend that the provisions of the Convention (and in particular article 54) do not constitute a prior written agreement by them to submit to the jurisdiction of the courts of the United Kingdom in respect of proceedings on an ICSID arbitration award within the meaning of the exception from state immunity set out in section 2 of the SIA.
Furthermore, Spain also claimed lack of jurisdiction both on the part of the arbitral panel that made the Award, and also the Commercial Court to register it. This argument, which Spain has inveterately raised over the years in all investment claims initiated against it, is the so-called "intra-EU objection". According to this objection, the arbitration clause provided for in Article 26(2)(c) of the ECT must be interpreted as inapplicable to disputes concerning an investment made by an investor from one EU Member State in the territory of another EU Member State. The foundations of those arguments are two decisions of the Court of Justice of the European Union (CJEU), more precisely in the landmark cases Achmea B.V. v. Slovak Republic (PCA Case No. 2008-13), Komstroy v. Republic of Moldova (UNCITRAL) and PL Holdings S.à.r.l. v. Republic of Poland (SCC Case No. V 2014/163), which were said by Spain to be authority, both in the law of the European Union and international law, to found the Court of Appeal’s absence of jurisdiction.
The Court of Appeal’s Decision Arguments
The appeals gave rise to three central issues:
i) whether section 1(1) of the SIA applies, in principle, to the registration of ICSID arbitration awards against a foreign state under the 1966 Act.
ii) if section 1(1) does apply, whether the exception to state immunity in section 2 of the SIA is necessarily engaged because states, in signing the Convention, have agreed in writing to submit to the jurisdiction in relation to the enforcement of ICSID arbitration awards.
iii) if section 1(1) does apply, and a state has not submitted to the jurisdiction by the very fact of being a party to the Convention, whether a foreign state is estopped or otherwise prevented from asserting the invalidity of the underlying award, with the result that the exception in section 9 of SIA is necessarily satisfied.
After analyzing and taking note of the provisions in articles 54 and 55 of the ICSID Convention with respect to the obligation of the contracting states to recognize an ICSID award as binding and enforceable as if it were a final judgment of its domestic courts and the applicability of the contracting state’s domestic law concerning state immunity, the Court of Appeal held that states are immune from the jurisdiction of the English courts pursuant to section 1(1) of the SIA save as otherwise provided within the SIA. Additionally, the Court noted that Section 2(2) of the SIA provides that a state may submit to the jurisdiction of the English courts via a prior written agreement, and that Section 9 provides that a state is not immune in respect of proceedings relating to an arbitration to which the state agreed in writing.
Based on these considerations, the Court of Appeal unanimously dismissed the appeals by holding that neither Appellant State was entitled to defend the recognition claims by reference to state immunity. This is because, in both cases, it was applicable the exception to state immunity provided for in section 2 of the SIA as both Spain and Zimbabwe, in signing the Convention, have agreed in writing to submit to the jurisdiction in relation to the enforcement of ICSID arbitration awards.
In the Court’s view, "[i]f the express words used amount, on their proper construction, to an unequivocal agreement by the state to submit to the jurisdiction, that is sufficient to satisfy section 2(2) of the SIA, even if the words `submit´ and `waiver´ are not used". As the Court noted, that reading is supported by prior Supreme Court decisions in Micula & Ors v Romania and NML Capital Ltd v Republic of Argentina, and consistent with the decisions of the courts of Australia, New Zealand, the United States, France and Malaysia, which have all interpreted article 54 as a waiver of adjudicative immunity by each Contracting State and, where domestically relevant, a submission to the jurisdiction.
The Court of Appeal nonetheless declined to provide its obiter view on Spain’s argument that the ECT had been invalidated between EU Member States.
Finally, after rejecting the appeals, the Court of Appeal did, however, remit Zimbabwe’s application to set-aside to the Commercial Court for directions as regards its non-immunity defences.
Cases Background
Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V. (formerly Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V.) v. Kingdom of Spain (ICSID Case No. ARB/13/31)
The dispute in the underlying arbitration related to an investment in the photovoltaic sector in Spain.
The claimants in the arbitration proceedings were Antin Infrastructure Services Luxembourg S.a.r.l., a company incorporated under the laws of Luxembourg, later renamed as Infrastructure Services Luxembourg S.à.r.l., and Antin Energia Termosolar B.V, a company incorporated under the laws of the Netherlands, later renamed Energia Termosolar B.V., who invested in solar energy projects in Spain based on an incentive scheme established by the Spanish government, designed to attract capital to renewable energy projects through regulated tariffs that ensured attractive long-term returns.
Beginning in 2012, however, Spain began walking back these incentives and imposed a 7 % tax on the production of electric power. This reform was justified by the economic crisis and the tariff deficit in the electricity sector. Nevertheless, it caused most of investors in the photovoltaic sector (among them Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V.), to resort to arbitration through the ECT and the ICSID Convention.
Investors alleged that these reforms violated the investment protection guarantees contained in the ECT, which protects foreign investors against abrupt and disproportionate regulatory changes.
In November 2013, the investors filed an ICSID arbitration against the Kingdom of Spain.
On 15 June 2018, the Tribunal decided that Spain had breached Article 10(1) of the Energy Charter treaty (ECT) by failing to accord fair and equitable treatment to the Claimants' investments, and awarded the investors EUR 112 million as compensation for the breach.
The Award was confirmed in annulment proceedings by an ad hoc Committee on 30 July 2021.
In June 2021, the Claimants applied ex parte to register the Award in England pursuant to the Arbitration Act 1966.
On 29 June 2021, the Award was registered by the King’s Bench Division of the High Court of Justice.
Finally, as noted above, on 24 May 2023, the Commercial Court of the High Court of Justice dismissed Spain’s application to set aside the registration.
Border Timbers Limited, Timber Products International (Private) Limited, and Hangani Development Co. (Private) Limited v. Republic of Zimbabwe (ICSID Case No. ARB/10/25)
The dispute that gave rise to the original arbitrations arose from the Land Reform Program (LRP) implemented by the Government of Zimbabwe through a series of measures first introduced after its independence in 1979.
On 14 September 2005, the government enacted the Constitution of Zimbabwe Amendment (No. 17) Act, 2005, which vested in the State title to land that had been previously identified as being subject to the LRP.
The von Pezold family, through Border Timbers Limited, Timber Products International (Private) Limited, and Hangani Development Co. (Private) Limited, owned three plantations in Zimbabwe, namely, the Forrester Estate, in the North of Zimbabwe, and the Border Estate and Makandi Estate, both in the East of Zimbabwe.
As a result of the 2005 Constitutional Amendment, all ten of the Forrester Properties, 21 of the 28 Border Properties, and six of the nine Makandi Properties were acquired by the government without any compensation.
In December 2010, the von Pezold family instituted ICSID arbitration proceedings pursuant to the dispute settlement provisions of the 1995 Germany - Zimbabwe BIT and the 1996 Switzerland - Zimbabwe BIT.
By an award dated 28 July 2015, Zimbabwe was ordered to pay to the Claimants some USD 124 million plus interest, together with a further USD 1 million in moral damages and costs.
Zimbabwe applied to have the award annulled, but the application was dismissed by the ad hoc Committee on 21 November 2018.
As the award was not satisfied, on 15 September 2021, the Claimants applied to the English court without notice under CPR Part 62.21 for registration and entry of judgment on the award in England pursuant to section 2 of the Arbitration (International Investment Disputes) Act 1966 (the “1966 Act”). The application was granted by Mrs Justice Cockerill on 8 October 2021, who ordered the award be recognised and entered as a judgment by the High Court in the same manner and with the same force and effect as if it were a final judgment of that court.
Finally, as stated above, on 19 January 2024, the Commercial Court of the High Court of Justice dismissed Zimbarwe’s application to set aside and confirmed the order to register the ICSID Award.