English Court of Appeal confirms that states may not rely on sovereign immunity to oppose registration of ICSID awards

Introduction

On 22 October 2024, in a much-anticipated judgment (here), the English Court of Appeal dismissed appeals by the Kingdom of Spain (Spain) and the Republic of Zimbabwe (Zimbabwe) against two High Court decisions upholding the registration of ICSID awards against them under the UK’s Arbitration (International Investment Disputes) Act 1966 (the 1966 Act), the statute which implements the 1965 Convention of the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention).

The Court of Appeal’s decision is important because, while the High Court had rejected Spain’s and Zimbabwe’s respective sovereign immunity challenges, it did so “for entirely different reasons”, leading to considerable uncertainty as to the English law position.

Rejecting the High Court’s analysis in both decisions, the Court of Appeal has now confirmed that, as a matter of English law, foreign states that are the subject of adverse ICSID awards cannot rely on sovereign immunity to oppose the registration of such awards in England because they are taken to have waived immunity from suit by virtue of being a Contracting State to the ICSID Convention.

This decision brings welcome clarity as to the availability of state immunity objections upon registration of an ICSID award under the 1996 Act. The Court’s ruling that Article 54 of the ICSID Convention represents a waiver of immunity from suit also brings English law into accord with the laws of Australia, New Zealand and France (among others).

The High Court’s inconsistent approach

In 2021, both sets of claimant investors successfully applied to the English courts for registration of their respective ICSID awards under the 1996 Act which Spain and Zimbabwe then challenged on the basis of sovereign immunity.

To explain briefly, under the UK’s State Immunity Act 1978 (the SIA):

• Foreign states enjoy general immunity from the jurisdiction of the UK’s courts, except as provided for in the SIA (Section 1(1)).
• One of the exceptions is where a state submits to the jurisdiction of the UK’s courts, which may take place after the dispute arises or by “prior written agreement” (Section 2(2)).
• Another exception is where a state agrees in writing to submit a dispute to arbitration and the relevant UK court proceedings relate to that arbitration (Section 9).

In Infrastructure Services v Spain¹ (judgment here), on which we reported previously (here), the High Court dismissed the state’s sovereign immunity challenge on the grounds that:

1. the ICSID Convention and 1996 Act precluded a state from challenging registration of an ICSID award in reliance on the immunity under Section 1(1) of the SIA; and
2. alternatively, Article 54 of the ICSID Convention constitutes a “prior written agreement” to submit to the jurisdiction under Section 2(2) of the SIA, and Spain had in any event agreed to arbitrate disputes under the Energy Charter Treaty, thereby waiving immunity from suit under Section 9 of the SIA.

In Border Timbers v Zimbabwe² (judgment here), the High Court again dismissed the state’s application but found instead that:

1. Article 54 of the ICSID Convention was not a “sufficiently clear and unequivocal submission to the jurisdiction” – the exception in Section 2(2) of the SIA did not therefore apply; and
2. nonetheless, contrary to both parties’ submissions, questions of sovereign immunity had no application to the registration of an ICSID award because it was a “ministerial act” that did not involve an ‘adjudicative step’ on the courts’ part – the issue of immunity only arose once the claimant investors sought to execute the registered award against the state’s property.

As a result, when asked to consider very similar legal issues, the High Court had arrived at the same conclusion via very different analyses. Spain and Zimbabwe duly obtained leave to appeal.

The Court of Appeal’s decision

Spain’s and Zimbabwe’s jointly-heard appeals gave rise to three key issues, namely:

1. Whether the general immunity from suit under Section 1(1) of the SIA has any relevance to the registration of ICSID awards against a foreign state under the 1966 Act.
2. If it does, whether the foreign state, as a Contracting State to the ICSID Convention, has waived that immunity by agreeing to “submit to the jurisdiction” in relation to the enforcement of ICSID awards under Article 54 of the ICSID Convention and Section 2 of the SIA.
3. If not, whether the foreign state is precluded from arguing that the ICSID award is invalid because the tribunal lacked jurisdiction, with the result that the arbitration exception in Section 9 of the SIA is necessarily satisfied.

Taking these in turn, the Court of Appeal concluded that:

1. Registration of an ICSID award is “not merely a ministerial or administrative act”; it requires the Court to be satisfied as to the proof of authenticity and other evidential requirements of the 1966 Act. Indeed, the Court of Appeal found that “there could not be a clearer case of the English court exercising its adjudicative jurisdiction over a foreign state than entering judgment against that state on the basis of a decision that the requirements of a United Kingdom statute had been met”.

Moreover, because, if it applies, state immunity from suit under Section 1(1) of the SIA represents a “barrier to the court assuming jurisdiction” rather than a defence to a claim over which the court has jurisdiction (as is the case for immunity from execution), registration of an ICSID award against a state under the 1966 Act inevitably engages questions of immunity.

2. Article 54 of the ICSID Convention is a “prior written agreement” for the purposes of Section 2(2) of the SIA. Article 54 provides that Contracting States must recognise an ICSID award as binding and enforce any pecuniary obligations within it as if the award were a final judgment of their courts. It draws a distinction between: (i) recognition of an ICSID award as binding; (ii) enforcement of the pecuniary obligations it imposes; and (ii) execution against a state’s property, the latter of which is governed by the laws of the state in which it is sought applicable to the judgments of that state’s courts (Article 54(3)). Article 55 then clarifies that Article 54 does not affect a state’s claim to immunity from execution. It is clear from the express language of Article 54, read in light of the ICSID Convention’s object and purpose, that a Contracting State not only agrees to recognise and enforce awards in its own jurisdiction but also that “awards to which it is party will be recognised and enforced in other Contracting States as though a final judgment”.

Accordingly, by ratifying the ICSID Convention, Contracting States submit to the jurisdiction of the UK courts and cannot therefore “oppose the registration of the ICSID awards against them on the grounds of state immunity”.

The Court also found that, notwithstanding the High Court’s “novel approach” in Border Timbers v Zimbabwe, Article 54 was an express and sufficiently clear submission to the jurisdiction. In reaching this conclusion, the Court referred extensively to a recent decision of the High Court of Australia (in which Norton Rose Fulbright acted for the Infrastructure Services parties) addressing recognition of the ICSID award in Infrastructure Services v Spain against a similar legislative backdrop. The Court observed that “[a]s general rule it is desirable that international treaties should be interpreted by the courts of all the states uniformly” and, by interpreting Article 54 as a waiver of immunity from suit, brought English law into line with that of Australia, New Zealand, France and Malaysia.

The Court brushed aside concerns raised by Zimbabwe and Spain that interpreting Article 54 as an advance waiver of immunity from suit might result in similar language in Article III of the New York Convention being read in the same manner. The Court found that, while the relevant provisions are similar, they are not identical and there was no reason why interpretation of one treaty should necessarily influence another. In addition, while the point had not been argued before the English courts, it was unclear why such an interpretation would have the “dramatic” effect alleged because it was always open for states to “contest the validity of the arbitration agreement (and hence the enforcement of the award)”. The Court observed that Article III has been in fact held to contain a submission to the jurisdiction by a state in Australia (a matter in which Norton Rose Fulbright also acts).

3. As the Court found that the exception in Section 2(2) of the SIA applied, it did not go on to consider the third question in detail. However, the Court observed (obiter) that Section 9 of the SIA “impos[es] a duty on the court to satisfy itself that the state in question has in fact agreed in writing to submit the dispute in question to arbitration”. The suggestion, therefore, is that, contrary to the English High Court’s decision in Infrastructure Services v Spain, states are not precluded for the purposes of asserting immunity from jurisdiction under local immunity laws from arguing that the arbitration agreement was ineffective when relying on Section 9. The point is however moot because, if the state in question is a Contracting State and the award in question is an ICSID award, the exception in Section 2 of the SIA will apply in any event.

The Court of Appeal’s judgment confirms that, while the SIA applies to ICSID enforcement proceedings (as an exercise of the English courts’ adjudicative jurisdiction), states cannot rely on immunity under Section 1(1) at the registration stage because Article 54 of the ICSID Convention amounts a submission to the jurisdiction falling with the exception in Section 2 of the SIA.

The Court of Appeal’s judgment resolves the contradictions in the lower court’s decisions. It also gives comfort to investors seeking to register ICSID awards against states in England. That said, as the Court declined to enter the debate as to Spain’s “intra-EU” objection, Zimbabwe’s “non-immunity defences” and the role that immunity is likely to play when proceedings progress to execution against the states’ property, this decision is unlikely to be the final word in either case.